<PAGE>

================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                ________________

                                   FORM 10-Q

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

                 For the Quarterly Period Ended June 30, 2001

             [_] 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 000-31637

                              GENOMICA CORPORATION
             (Exact name of registrant as specified in its charter)


               Delaware                             23-2821818
    (State or other jurisdiction of              (I.R.S. Employer
    incorporation or organization)              Identification No.)



       1745 38th Street, Boulder, Colorado              80301-2630
    (Address of principal executive office)             (Zip Code)


      Registrant's telephone number, including area code: (720) 565-4500



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 shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X]    No [ ]


The number of shares outstanding of the registrant's common stock as of
August 8, 2001 was 22,953,672.

================================================================================
<PAGE>

                                     INDEX

PART I - FINANCIAL INFORMATION

Item 1 - Condensed Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
<S>                                                                                 <C>
Consolidated Balance Sheets (Unaudited)...........................................   1

Consolidated Statements of Operations (Unaudited).................................   2

Consolidated Statements of Cash Flows (Unaudited).................................   3

Notes to Condensed Consolidated Financial Statements (Unaudited)..................   4

Item 2 - Management's Discussion and Analysis of Financial Condition and Results
          of Operations...........................................................   8

         Factors that May Impact Future Operating Results.........................  11

Item 3 - Quantitative and Qualitative Disclosures About Market Risk...............  19

PART II - OTHER INFORMATION.......................................................  20

Item 2 - Changes in Securities and Use of Proceeds................................  20

         Signatures...............................................................  20
</TABLE>
<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

                             GENOMICA CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                           June 30,     December 31,
                                                             2001           2000
                                                         ------------   ------------
<S>                                                      <C>            <C>
               ASSETS
               ------
Current Assets:
  Cash and cash equivalents............................  $  8,398,395   $ 25,784,803
  Short-term investments...............................    49,124,579     73,153,650
  Accounts receivable-trade............................       654,092        353,448
  Note receivable......................................       510,625             --
  Interest receivable..................................     2,430,942      2,162,810
  Prepaid expenses and other...........................       432,026        352,114
                                                         ------------   ------------
     Total current assets..............................    61,550,659    101,806,825
Long-Term Investments..................................    55,501,033     24,992,694
Property and Equipment, net............................     5,424,731      2,723,507
Other Assets...........................................        60,408         66,750
                                                         ------------   ------------
     Total assets......................................  $122,536,831   $129,589,776
                                                         ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
  Accounts payable.....................................  $    741,584   $    933,903
  Accrued compensation and employee benefits...........       513,473        431,357
  Deferred revenue.....................................       717,332        814,626
  Other accrued expenses...............................       264,019        323,751
                                                         ------------   ------------
     Total current liabilities.........................     2,236,408      2,503,637
                                                         ------------   ------------
Commitments and Contingencies
Stockholders' Equity:
  Convertible preferred stock, $.001 par value,
     5,000,000 shares authorized, zero
     shares issued and outstanding, respectively.......            --             --
  Common stock, $.001 par value, 50,000,000
     shares authorized, 22,917,343 and 22,839,559
     shares issued and 22,792,800 and 22,715,016
     shares outstanding, respectively..................        22,917         22,839
  Treasury stock, at cost..............................       (19,715)       (19,715)
  Additional paid-in capital...........................   177,255,241    168,136,541
  Options and warrants.................................    22,885,286     33,307,529
  Deferred compensation................................   (11,447,911)   (16,929,010)
  Accumulated other comprehensive income...............       426,163        256,984
  Accumulated deficit..................................   (68,821,558)   (57,689,029)
                                                         ------------   ------------
     Total stockholders' equity........................   120,300,423    127,086,139
                                                         ------------   ------------
     Total liabilities and stockholders' equity........  $122,536,831   $129,589,776
                                                         ============   ============
</TABLE>


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

--------------------------------------------------------------------------------
                                                                          Page 1
<PAGE>

                              GENOMICA CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                              Three Months Ended            Six Months Ended
                                                   June 30,                    June 30,
                                          -------------------------   ---------------------------
                                              2001          2000           2001           2000
                                          -----------   -----------   ------------   ------------
<S>                                       <C>           <C>           <C>            <C>
Revenue.................................  $   463,651   $   396,172   $    907,181   $    766,441
                                          -----------   -----------   ------------   ------------
Operating Expenses:
  Costs of revenue......................      108,335        93,208        223,011        195,303
  Research and development..............    3,694,035     3,243,376      7,239,431      6,037,849
  Selling and marketing.................    2,132,467     1,661,794      4,057,270      3,029,907
  General and administrative............    1,964,158     2,742,391      4,084,155      5,236,066
                                          -----------   -----------   ------------   ------------
     Total operating expenses...........    7,898,995     7,740,769     15,603,867     14,499,125
                                          -----------   -----------   ------------   ------------
       Operating loss...................   (7,435,344)   (7,344,597)   (14,696,686)   (13,732,684)
Interest Income.........................    1,644,860       261,130      3,564,157        375,362
Interest Expense........................           --       (12,702)            --        (29,469)
                                          -----------   -----------   ------------   ------------
Net Loss................................   (5,790,484)   (7,096,169)   (11,132,529)   (13,386,791)
Deemed Dividend Related to
  Beneficial Conversion Feature
  of Preferred Stock....................           --            --             --    (15,008,813)
                                          -----------   -----------   ------------   ------------
Net Loss Applicable to Common
  Stockholders..........................  $(5,790,484)  $(7,096,169)  $(11,132,529)  $(28,395,604)
                                          ===========   ===========   ============   ============
Net Loss Per Share, basic and
  diluted...............................  $     (0.26)  $     (5.30)  $      (0.50)  $     (22.13)
                                          ===========   ===========   ============   ============
Weighted Average Common
  Shares Outstanding, basic
  and diluted...........................   22,479,448     1,338,738     22,434,566      1,283,321
                                          ===========   ===========   ============   ============
Pro Forma Net Loss Per Share (Note 2):
     Net loss per share, basic
     and diluted........................                $     (0.47)                 $      (2.07)
                                                        ===========                  ============
     Weighted average common
     shares outstanding,
     basic and diluted..................                 15,133,161                    13,737,720
                                                        ===========                  ============
</TABLE>


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

--------------------------------------------------------------------------------
                                                                          Page 2
<PAGE>

                              GENOMICA CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                          Six Months Ended June 30,
                                                         ---------------------------
                                                              2001           2000
                                                         ------------   ------------
<S>                                                      <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...............................................  $(11,132,529)  $(13,386,789)
Adjustments to reconcile net loss to net cash used in
  operating activities--
  Depreciation.........................................       730,738        283,102
  Amortization of deferred compensation................     4,153,418      8,258,375
  Amortization of premium on investments...............        79,863             --
  Change in deposits...................................            --       (625,000)
  Change in other assets...............................         6,342         (1,457)
  Changes in operating assets and liabilities--
     Accounts receivable...............................      (300,644)      (605,179)
     Interest receivable...............................      (278,757)            --
     Prepaid expenses and other assets.................       (79,912)      (200,791)
     Accounts payable..................................      (192,319)       388,705
     Accrued compensation and employee benefits........        82,116        129,835
     Deferred revenue..................................       (97,294)       296,492
     Other accrued expenses............................       (59,732)       123,864
                                                         ------------   ------------
     Net cash used in operating activities.............    (7,088,710)    (5,338,843)
                                                         ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption and sales of investments....................    58,544,728     10,593,985
Purchases of investments...............................   (64,928,476)   (19,727,152)
Purchase of property and equipment.....................    (3,431,962)    (1,747,003)
Investment in note receivable..........................      (500,000)            --
                                                         ------------   ------------
  Net cash used in investing activities................   (10,315,710)   (10,880,170)
                                                         ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases.............................            --        (64,808)
Proceeds from issuance of preferred stock..............            --     15,033,952
Costs related to issuance of preferred stock...........            --        (25,137)
Deferred financing costs...............................            --       (431,045)
Proceeds from exercise of common stock options.........        24,216        246,246
Purchase of treasury stock.............................            --         (6,625)
                                                         ------------   ------------
  Net cash provided by financing activities............        24,216     14,752,583
                                                         ------------   ------------
NET DECREASE IN CASH AND
  CASH EQUIVALENTS.....................................   (17,380,204)    (1,466,430)
EFFECT OF EXCHANGE RATES ON CASH AND
  CASH EQUIVALENTS.....................................        (6,204)            --
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD............................................    25,784,803      3,518,570
                                                         ------------   ------------
CASH AND CASH EQUIVALENTS AT END OF
  PERIOD...............................................  $  8,398,395   $  2,052,140
                                                         ============   ============
</TABLE>


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

--------------------------------------------------------------------------------
                                                                          Page 3
<PAGE>

                              GENOMICA CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

Note 1. Basis of Presentation

The unaudited condensed consolidated financial statements of Genomica
Corporation and its subsidiary (the "Company") included herein reflect all
adjustments, consisting only of normal recurring adjustments which, in the
opinion of management, are necessary to fairly present our consolidated
financial position, results of operations, and cash flows for the periods
presented. Certain information and footnote disclosures normally included in
audited financial information prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission's ("SEC") rules and regulations. The consolidated
results of operations for the period ended June 30, 2001 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire fiscal year. The information included in this Form 10-Q should be read in
conjunction with the consolidated financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Statements and
notes thereto included in the Company's Form 10-K for the fiscal year ended
December 31, 2000.

Note 2. Initial Public Offering

On October 4, 2000, the Company closed its initial public offering and sold
6,440,000 shares of its common stock at $19 per share. The net proceeds, after
paying the underwriting discount and estimated expenses associated with the
offering, were $112.5 million. Management has broad discretion as to the
allocation of the net proceeds of the offering. Although the Company intends to
evaluate acquisition opportunities, there are no current agreements or
commitments with respect to any acquisition. The Company has invested the net
proceeds of the offering in interest-bearing, investment-grade securities until
needed to fund operations and development.

Note 3. Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accounts of the Company have been consolidated. All intercompany accounts
and transactions have been eliminated. The consolidated financial statements are
stated in U.S. dollars and are prepared in accordance with accounting principles
generally accepted in the United States. Unrealized gains and losses recorded as
a result of translating the Company's foreign subsidiary's financial statements
into U.S. dollars have been included in accumulated other comprehensive income
in the accompanying balance sheets. Certain amounts in the prior years'
consolidated financial statements have been reclassified to conform to the
current year presentation.

Uses of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions. These estimates and assumptions may affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

Cash, Cash Equivalents and Investments in Marketable Securities

The Company's investment portfolio consists of investments classified as cash
equivalents, short-term investments, or long-term investments. All highly liquid
investments with an original maturity of three months or less when purchased are
considered to be cash equivalents. All cash equivalents are carried at cost,
which approximates fair value. Short- and long-term investments consist of U.S.
government, state, municipal and corporate debt securities with maturities of up
to 24 months, as well as money market mutual funds. The Company's investments
are classified as available-for-sale investments as defined in Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, at June 30, 2001, all
investments are carried at fair value as determined by their quoted market
prices and included as appropriate in either short- or long-term investments.
All

--------------------------------------------------------------------------------
                                                                          Page 4
<PAGE>

unrealized gains or losses are included in stockholders' equity as a component
of accumulated other comprehensive income.

The Company's cash, cash equivalents, short-term and long-term investments had a
fair value at June 30, 2001, of $113.0 million and a gross unrealized gain of
$432,367.

The amortized cost basis, aggregate fair value, and unrealized gains or losses
for the Company's cash, cash equivalents, short- and long-term investment
portfolio as of June 30, 2001 is presented below:

<TABLE>
<CAPTION>
                                                                  Gross       Gross
                                       Amortized    Aggregate   Unrealized  Unrealized
                                      Cost Basis   Fair Value     Gains       Losses
                                      -----------  -----------  ----------  ----------
<S>                                   <C>          <C>          <C>         <C>
June 30, 2001
Cash, cash equivalents, and short-
 term investments:
Euro dollar bonds...................  $21,967,570  $22,134,309    $166,739  $       --
Corporate debt securities...........   23,737,226   23,968,729     231,503          --
Money  market funds.................    3,000,000    3,000,000          --          --
Asset-backed securities.............    2,995,774    3,021,541      25,767          --
Cash................................    5,398,395    5,398,395          --          --
                                      -----------  -----------    --------  ----------
Total cash, cash equivalents, and
  short-term investments............  $57,098,965  $57,522,974    $424,009  $       --
                                      ===========  ===========    ========  ==========
Long-term investments:
Euro dollar bonds...................  $ 7,057,238  $ 7,138,600    $ 81,362  $       --
Corporate debt securities...........   46,403,374   46,313,073          --      90,301
Asset-backed securities.............    2,032,063    2,049,360      17,297          --
                                      -----------  -----------    --------  ----------
Total long-term investments.........  $55,492,675  $55,501,033    $ 98,659  $   90,301
                                      ===========  ===========    ========  ==========
</TABLE>

Revenue Recognition

The Company generates revenue from the license and related maintenance of its
proprietary software products. The Company recognizes revenue when there is
persuasive evidence of an arrangement, delivery has occurred, collection is
probable, and the fee is fixed or determinable. If an acceptance period exists,
license revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. The majority of the Company's license sales
are on a term basis and generally, the license fees and subsequent maintenance
revenue are bundled and deferred, to be recognized ratably over the term of the
arrangement. Maintenance consists of software updates, content updates and
support. Certain software arrangements are sold on a perpetual basis and include
multiple elements, such as maintenance, services and training. If present, such
elements are unbundled based on vendor-specific objective evidence of their fair
value and the related revenue is recognized when those elements are delivered.

The Company has entered into a reseller arrangement with Applied Biosystems,
Inc. ("ABI"). Under this arrangement, the Company has granted ABI exclusive
rights to license its Linkmapper software application and re-sell the software
and related maintenance and support services to end users. To maintain this
exclusive right, ABI must meet certain sales milestones each quarter. ABI is
required to pay royalties to the Company at contracted percentages of the sales
price for each license or service contract sold. As the Company is responsible
for providing maintenance services to ABI's end-customers related to the
Linkmapper software, the Company has unbundled a portion of the royalty payments
as deferred maintenance revenue based upon vendor-specific objective evidence of
the fair value of the undelivered elements.

The Company believes its current revenue recognition policies and practices are
consistent with the provisions of Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), and related amendments, technical practice aids and
interpretations. Implementation guidelines for these standards, as well as
potential new standards, could lead to unanticipated changes in the Company's
current revenue recognition policies. Such changes could affect the timing of
the Company's future revenue and results of operations.

--------------------------------------------------------------------------------
                                                                          Page 5
<PAGE>

Note 4. Net Loss Per Share

Basic loss per share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding for the period. Diluted
loss per share is determined by dividing the net earnings or loss by the sum of
(1) the weighted average number of common shares outstanding, (2) if not anti-
dilutive, the number of shares of convertible preferred stock as if converted
upon issuance, and (3) if not anti-dilutive, the effect of outstanding stock
options and warrants determined utilizing the treasury stock method.

As a result of the Company's net losses, all potentially dilutive securities as
of June 30, 2001 and 2000, as indicated in the table below, would be anti-
dilutive and are excluded from the computation of diluted loss per share.

<TABLE>
<CAPTION>
                                     June 30,
                                2001        2000
                             ---------  ----------
<S>                          <C>        <C>
          Stock Options      1,835,860   2,333,652
          Warrants              52,534     340,386
          Preferred Stock           --  13,794,423
                             ---------  ----------
          Total              1,888,394  16,468,461
                             =========  ==========
</TABLE>

Pro Forma Net Loss Per Share

Pro forma net loss per share for the three and six months ended June 30, 2000
was computed using the net loss and weighted average number of shares of common
stock outstanding, including the pro forma effects of the assumed conversion of
all outstanding shares of the Company's convertible preferred stock into shares
of common stock as if such conversion occurred on January 1, 2000, or at date of
original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of 13,794,423 shares for the three months ended June 30, 2000 and
12,454,399 shares for the six months ended June 30, 2000.

Note 5. Stockholders' Equity

Stock Plan

Deferred compensation is included as a reduction of stockholders' equity and is
being amortized in accordance with FASB Interpretation No. 28 over the vesting
periods of the related options, which are generally three to five years. Stock
compensation expense recognized for the three and six months ended June 30,
2001, and remaining compensation expense to be recognized (without regard to
cancellations or forfeitures) are as follows:

<TABLE>
<CAPTION>
                            Deferred Stock     Deferred Stock
                             Compensation       Compensation
                              Recognized         Recognized
                              During The         During The      Unamortized Deferred Stock Compensation To Be Recognized
                             Three Months       Six Months                During the Period Ending December 31,
                                Ended              Ended      ---------------------------------------------------------------
                            June 30, 2001      June 30, 2001     2001           2002          2003          2004       2005
                            -------------      -------------  ----------     ----------    ----------     --------    -------
<S>                          <C>                 <C>          <C>            <C>           <C>            <C>         <C>
Research and development     $  407,961          $  795,944
Selling and marketing           757,374           1,528,588
General and administrative      863,016           1,828,886
                             ----------          ----------
                             $2,028,351          $4,153,418   $3,676,894     $4,608,873    $2,335,799     $782,135    $44,210
                             ==========          ==========   ==========     ==========    ==========     ========    =======
</TABLE>

Note 6. Contingencies

The Company, from time to time, may be subject to certain claims, assertions or
litigation by outside parties as part of its ongoing business operations. The
Company is currently not a party to any legal proceedings.

Note 7. Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 addresses financial accounting
and reporting for business combinations. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001, and for all business
combinations accounted for under the purchase method initiated before but
completed after June 30, 2001. In addition, in June 2001 the FASB issued SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets. SFAS No. 142 is effective for fiscal years beginning after December 15,
2001, and

--------------------------------------------------------------------------------
                                                                          Page 6
<PAGE>

applies to all goodwill and other intangibles recognized in the financial
statements at that date. The adoption of these standards is not expected to have
an impact on the Company's current financial position or results of operations.
However, any business combinations initiated from this point forward will be
impacted by these two standards.

Effective January 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Since inception, the Company has not entered into arrangements that would fall
under the scope of SFAS No. 133 and thus, the adoption of SFAS No. 133 had no
impact on the Company's financial condition or its results of operations.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition" ("SAB 101"). SAB 101 provides the SEC Staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The Company has implemented the guidance in SAB 101 for all periods presented.

--------------------------------------------------------------------------------
                                                                          Page 7
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion of our financial condition and results of operations
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements and
the Notes thereto included in our Form 10-K for the fiscal year ended December
31, 2000. This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements using terminology such as "may," "will," "expects," "plans,"
"anticipates," "estimates," "potential," or "continue," or the negative thereof
or other comparable terminology regarding beliefs, plans, expectations or
intentions regarding the future. Forward-looking statements involve risks and
uncertainties and actual results could differ materially from those discussed in
the forward-looking statements. All forward-looking statements and risk factors
included in this document are made as of the date hereof, based on information
available to us as of the date thereof, and we assume no obligation to update
any forward-looking statement or risk factors.

Overview

We are a provider of innovative software products and services that are designed
to enable pharmaceutical and biotechnology researchers to accelerate the drug
discovery and development process. Discovery Manager, our primary product, is
used for genomics research, including genetic research, gene discovery and
pharmacogenomics. This product allows researchers to turn the vast volumes of
gene, SNP, and patient data from diverse sources into information useful for
drug discovery. Our current customers include leading genomics-based research
organizations such as AstraZeneca, GlaxoSmithKline, Pfizer and the National
Cancer Institute. We have a strategic alliance with Applied Biosystems to
license and market certain components of our software technology and products
for use with its industry-leading systems for drug discovery. We have entered
into an agreement with Celera Genomics forming a strategic alliance to create a
special "Celera Edition" of Discovery Manager for use with the Celera Discovery
System's SNP Reference Database.

We have sold our products to customers directly since June 1998. We derive
revenue primarily from granting licenses to our Discovery Manager products and
the Reference Database to pharmaceutical, biotechnology, and academic research
organizations. Our software license agreements are typically one year or longer
in length, and include support and maintenance. The price for each agreement
depends upon the number of users licensed by our customers, the duration of the
agreement and which of our product components and services the customer
purchases. We typically invoice our customers on an annual or quarterly basis at
the commencement of the software license agreement and on each subsequent
anniversary date. We record deferred revenue at the time we invoice and we
recognize the associated revenue ratably over the related period. For products
sold through our relationship with Applied Biosystems, we recognize revenue on
the license fee royalty and record deferred revenue for the support and
maintenance, which is recognized over the annual support period.

We have incurred losses since our inception. As of June 30, 2001, we had an
accumulated deficit of $68.8 million. The deficit includes stock-based non-cash
compensation charges of $20.5 million, including $4.2 million recognized in
2001, and a $17.1 million non-cash deemed dividend for the difference between
the deemed fair value of our common stock and the price at which our Series C
preferred stock and Series D preferred stock were convertible in 2000. The
remainder of the accumulated deficit, $31.2 million, resulted from the
significant costs incurred in the development of our technology platform and the
establishment of relationships with our customers. We intend to continue
investing in research and development, selling and marketing and our computer
and administrative infrastructure. In addition, as a result of option grants
made prior to our initial public offering with exercise prices below their
deemed fair market value for financial reporting purposes, we will incur
approximately $11.4 million in additional non-cash compensation charges to
earnings in future periods.

Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Total Revenue. Total revenue increased to $464,000 from $396,000 for the same
period of 2000. The revenue increase is due primarily to $50,000 of consulting
fees in the 2001 quarter which were not present in the 2000 quarter, and due to
royalty fees from our Linkmapper product sold through Applied Biosystems
totaling $32,000 in the 2001 quarter, versus no such royalties in the 2000
quarter. The consulting fees were from a specific consulting project that was
completed in April 2001.

--------------------------------------------------------------------------------
                                                                          Page 8
<PAGE>

Costs of Revenue. Costs of revenue increased to $108,000 in 2001 from $93,000
for the same period of 2000. The increase is primarily due to increased customer
support costs and costs associated with our consulting fee revenue, partially
offset by decreased costs of research grants. We expect our costs of revenue to
increase in absolute dollars but decrease as a percentage of revenue as we
spread customer service and support and maintenance over a larger revenue base.
Because the majority of our revenue is recognized ratably over the life of our
license agreements, our revenue may grow more slowly than our costs for a period
of time, as we continue building our infrastructure to support our customers.

Research and Development. Research and development expenses increased to $3.7
million in 2001 from $3.2 million for the same period of 2000. Excluding non-
cash compensation charges of $408,000 in 2001 and $1.2 million in 2000, research
and development expenses increased $1.3 million. The increase in costs is
primarily due to increased salaries, recruiting, and other personnel costs
associated with our hiring additional software developers and scientists to
develop scientific applications using Java technology and Oracle Corporation's
relational database management system. We expect research and development
expenses will remain near this level in the immediate future because we consider
our staffing levels adequate to meet our current product development plans.

Selling and Marketing. Selling and marketing expenses increased to $2.1 million
in 2001 from $1.7 million for the same period of 2000. Excluding non-cash
compensation charges of $757,000 in 2001 and $969,000 in 2000, selling and
marketing costs increased $683,000 Additional salaries, other personnel costs,
consulting, travel, advertising, and exhibition costs comprised the majority of
the increase for the period. We expect selling and marketing expenses will
remain at comparable levels for the next two quarters and may increase in 2002
in conjunction with the anticipated delivery of new products.

General and Administrative. General and administrative expenses decreased to
$2.0 million in 2001 from $2.7 million for the same period of 2000. Excluding
non-cash compensation charges of $863,000 in 2001 and $2.0 million in 2000,
general and administrative costs increased $404,000. The increase is primarily
related to salaries, other personnel costs, investor relations and reporting
costs associated with being a public company. We expect general and
administrative expenses will continue at this level in future quarters.

Non-cash Stock-based Compensation. Deferred compensation is included as a
reduction of stockholders' equity and is being amortized in accordance with FASB
Interpretation No. 28 over the vesting periods of the related options, which are
generally three to five years. Deferred compensation for options granted is the
difference between the exercise price and the deemed fair value for financial
reporting purposes of our common stock on the date the options were granted
prior to our initial public offering. Non-cash charges representing the
amortization of deferred stock compensation totaled $2.0 million for the period
in 2001 compared to $4.2 million for the comparative period in 2000. The
decrease in non-cash compensation expense is due to the method of amortizing our
deferred compensation, which results in the recognition of a larger portion of
expense in the initial periods after grant, and due to employees who left the
Company.

Interest Income. Interest income increased to $1.6 million in 2001 from $261,000
in the same period of 2000. The increase is due to our higher cash and
investment balances resulting from the proceeds of our initial public offering.
The proceeds from our initial public offering have been invested in investment
grade securities to be used as needed. We expect interest income will decrease
in future periods as we use our cash to fund our operating losses, expand our
business, develop our products and establish and maintain relationships with our
customers. We also anticipate a lower average rate of return on our investment
portfolio in the future as securities mature and are reinvested into lower
interest bearing securities caused by current market conditions.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Total Revenue. Total revenue increased to $907,000 from $766,000 for the same
period of 2000. The revenue growth is primarily due to licensing our software to
an increased number of pharmaceutical, biotechnology, and academic
organizations, $50,000 of consulting fees in the second quarter of 2001, and
royalty fees from our Linkmapper product sold through Applied Biosystems. Grant
revenues of $27,000 were recognized for the first quarter of 2000; there were no
grant revenues in the first or second quarters of 2001 as the grant was
completed in February of 2000. The consulting fees were from a specific
consulting project that was completed in April 2001.

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Costs of Revenue. Costs of revenue increased to $223,000 in 2001 from $195,000
for the same period of 2000. The increase is primarily due to increased customer
support costs and costs associated with our consulting fee revenue, partially
offset by decreased costs of research grants. We expect our costs of revenue to
increase in absolute dollars but decrease as a percent of revenue as we spread
customer service and support and maintenance over a larger revenue base. Because
the majority of our revenue is recognized ratably over the life of our license
agreements, our revenue may grow more slowly than our costs for a period of
time, as we continue building our infrastructure to support our customers.

Research and Development. Research and development expenses increased to $7.2
million in 2001 from $6.0 million for the same period of 2000. Excluding non-
cash compensation charges of $796,000 in 2001 and $2.6 million in 2000, research
and development expenses increased $3.0 million. The increase in costs is
primarily due to increased salaries, recruiting, and other personnel costs
associated with our hiring additional software developers and scientists to
develop scientific applications using Java technology and Oracle Corporation's
relational database management system. We expect research and development
expenses will remain near this level in the immediate future because we consider
our staffing levels adequate to meet our current product development plans.

Selling and Marketing. Selling and marketing expenses increased to $4.1 million
in 2001 from $3.0 million for the same period of 2000. Excluding non-cash
compensation charges of $1.5 million in 2001 and $1.7 million in 2000, selling
and marketing costs increased $1.2 million. Additional salaries, other personnel
costs, consulting, travel, advertising, and exhibition costs comprised the
majority of the increase for the period. We expect selling and marketing
expenses will remain at comparable levels for the next two quarters and may
increase in 2002 in conjunction with the anticipated delivery of new products.

General and Administrative. General and administrative expenses decreased to
$4.1 million in 2001 from $5.2 million for the same period of 2000. Excluding
non-cash compensation charges of $1.8 million in 2001 and $4.0 million in 2000,
general and administrative costs increased $1.0 million. The cost increase for
the period is primarily related to salaries, and other personnel costs, investor
relations and reporting costs associated with being a public company. We expect
general and administrative expenses will continue at this level in future
quarters.

Non-cash Stock-based Compensation. Deferred compensation is included as a
reduction of stockholders' equity and is being amortized in accordance with FASB
Interpretation No. 28 over the vesting periods of the related options, which are
generally three to five years. Deferred compensation for options granted is the
difference between the exercise price and the deemed fair value for financial
reporting purposes of our common stock on the date the options were granted
prior to our initial public offering. Non-cash charges representing the
amortization of deferred stock compensation totaled $4.2 million for the period
in 2001 compared to $8.3 million for the comparative period in 2000. The
decrease in non-cash compensation expense is due to the method of amortizing our
deferred compensation, which results in the recognition of a larger portion of
expense in the initial periods after grant, and due to employees who left the
company.

Interest Income. Interest income increased to $3.6 million in 2001 from $375,000
in the same period of 2000. The increase is due to our higher cash and
investment balances resulting from the proceeds of our initial public offering.
The proceeds from our initial public offering have been invested in investment
grade securities to be used as needed. We expect interest income will decrease
in future periods as we use our cash to expand our business, develop our
products, and establish and maintain relationships with our customers. We also
anticipate a lower average rate of return on our investment portfolio in the
future as securities mature and are reinvested into lower interest bearing
securities caused by current market conditions.

Deemed Dividend Related to Beneficial Conversion Feature of Preferred Stock. In
2000 we incurred a charge of approximately $15 million related to the issuance
of our Series C preferred stock. All of our preferred stock converted to common
stock upon the closing of our initial public offering on October 4, 2000. There
was no comparable charge for the same period in 2001.

Liquidity and Capital Resources

On October 4, 2000, we closed our initial public offering of 6,440,000 shares of
common stock at $19 per share. We received net proceeds of approximately $112.5
million in cash. Prior to this offering, we financed our operations primarily
from the net proceeds of approximately $38.1 million generated from the issuance
of preferred stock.

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During the six months ended June 30, 2001, we used cash of approximately $7.0
million to fund our net losses of $11.1 million. Our investing activities for
the six months ended June 30, 2001 used cash of $10.4 million, and consisted of
$6.4 million in net purchases and maturities of investments and $3.5 million in
purchases of property and equipment. During the same six-month period we made
investments in leasehold improvements and equipment primarily related to
increasing our staff levels. We anticipate making only a modest level of
additional investments in our computer infrastructure and facilities during the
remainder of the year.

As of June 30, 2001, we had cash, cash equivalents and investments of
approximately $113.0 million, down from the $123.9 million of cash, cash
equivalents and investments at December 31, 2000. This decrease reflects the
cash used to fund our operations and capital equipment purchases for the six
months ended June 30, 2001.

We expect our usage of cash to continue at comparable levels for the foreseeable
future as we continue to incur operating losses. The amount and timing of cash
usage will depend on market acceptance of our products and the resources we
devote to researching and developing, marketing, selling and supporting our
products. We may also acquire complementary businesses or products, although we
have not committed to do so. We believe that our cash, cash equivalents and
short-term investments, including the net proceeds of our initial public
offering, are sufficient to fund our working capital requirements for the
foreseeable future.

FACTORS THAT MAY IMPACT FUTURE OPERATING RESULTS

In addition to the other information in this report, the following factors
should be considered carefully in evaluating our business and prospects:

We have a history of operating losses and an accumulated deficit, and we may not
succeed or become profitable.

We will need to generate significant revenue to achieve profitability and we may
be unable to do so. Even if we do achieve profitability, we may not be able to
sustain or increase profitability in the future. If we do not achieve or sustain
profitability, then we may be unable to continue our operations. We have
incurred operating losses every quarter since we began operations and we have
not generated enough revenue to cover the substantial amounts that we have spent
to develop and market our products and services. We had an accumulated deficit
of $68.8 million at June 30, 2001.

We expect to invest substantial financial and other resources to develop and
introduce new products and services and expand our sales and marketing
departments, strategic relationships and operating infrastructure. We expect
that our expenses will continue to exceed our revenues, resulting in continued
operating losses and negative cash flow from operations, for the foreseeable
future.

We will incur significant charges to earnings as a result of stock option
grants. This will hamper our ability to become profitable.

As a result of option grants prior to our initial public offering, we will incur
significant non-cash charges to earnings in future periods, which will hamper
our ability to become profitable. For 2000, these charges were $14.7 million.
These charges were $2.0 million for the three months ended June 30, 2001 and
$4.2 million for the six months ended June 30, 2001 and are expected to be
approximately $3.7 million for the remainder of 2001, $4.6 million for 2002 and
$3.2 million for future periods. Our lack of profitability in any particular
period and the amount of any net loss, which will be exacerbated by these
charges, could cause the market price for our common stock to drop, perhaps
significantly.

Our limited operating history makes evaluating our business difficult. This also
makes it difficult to forecast our future operating results.

We commenced operations in September 1995 and we did not begin generating
revenue from our product and services until June 1998. Also, we have only sold
our product to a limited number of customers to date. Our limited operating
history makes it difficult to evaluate our business and to forecast our future
operating results. As a result, you must consider the risks and uncertainties
inherent in the development of a new business enterprise.

The market for our products and services is evolving and uncertain, and if our
products and services do not achieve market acceptance, our business will be
harmed. Our future results of operations depend on whether the market accepts
Discovery Manager and new products and services that we intend to develop. As is
typical in new and evolving markets,

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demand and market acceptance for our products and services are subject to a high
level of uncertainty. Only a few commercially available software products
designed specifically for genomics-based drug development and discovery exist
and these are unproven.

Our software is designed to incorporate features that respond to the needs of
pharmaceutical, biotechnology, and academic researchers. To the extent we
experience delays or difficulties implementing features that these researchers
request, our ability to serve our customers may be adversely affected.

Market acceptance of our products and services will depend on a number of
factors, some of which are not in our control. The amount and timing of our
revenues and profitability will be negatively impacted if the market for our
products fails to develop or develops more slowly than we expect.

If we are unable to obtain additional capital to fund our operations when
needed, our sales and marketing and product development efforts would be
adversely affected. This could cause our operating results to be materially
harmed.

Future capital requirements will depend on the extent to which we acquire or
invest in businesses, products and technologies. If we should require additional
financing due to unanticipated developments, additional financing may not be
available when needed or, if available, we may not be able to obtain this
financing on terms favorable to us or to our stockholders. Insufficient funds
may require us to delay, scale back or eliminate some or all of our research and
development programs, or may adversely affect our ability to operate as a going
concern. If additional funds are raised by issuing equity securities,
substantial dilution to existing stockholders may result.

If we fail to successfully redevelop our product to use a different computer
programming language and database, our customer base will likely decline.

To maintain and increase our customer base, we are currently redeveloping our
product with a different programming language and database platform. We are not
sure if the redeveloped product will have the same performance level as our
current product. If we do not successfully redevelop this product, our customer
base may decline. We have experienced delays in launching our product on the new
technology platform due to software development taking longer than originally
planned. This has negatively impacted our ability to attract new customers and
meet our expected revenues. Any further delays in this redevelopment may result
in postponement of future sales and customers with contracts up for renewal may
choose to delay renewal until the new platform is complete or they may choose
not to renew. In addition, until our customers transition to our redeveloped
product, we will be required to devote resources to maintain and support both
our current product and redeveloped product, which could consume both our
personnel and other resources. If in the future our customers demand a different
programming language or database platform than the ones we have chosen for the
current redevelopment, we will incur substantial additional costs in
redeveloping our product and our operating results will be harmed.

We expect to rely heavily on strategic relationships with larger companies to
help us achieve market acceptance for our products. If we are unable to
successfully develop these relationships, or if these companies do not perform
as expected, our ability to achieve profitability would be materially harmed.

Part of our business strategy is to work with larger, more established companies
that are suppliers to the drug discovery and development industry to help create
market awareness and acceptance of our products. We have limited experience in
developing strategic relationships of this type and have entered into only three
to date. If we are unsuccessful in developing strategic relationships, or if
parties with which we develop relationships do not perform as expected, our
products may not achieve broad market acceptance and our ability to achieve
profitability will be significantly harmed. Our relationship with one of our
strategic partners has not performed as expected. As a result, we have not met
our revenue goals during 2001. Any further performance problems from our
strategic partners will harm our ability to generate revenue.

If we do not increase our brand and name recognition, our ability to sell our
products will be reduced and our business and operating results will suffer.

We have generated revenue from product licenses only since 1998 and currently
have only 19 customers using our Discovery Manager software. Most of our target
customers are large pharmaceutical and biotechnology companies and

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                                                                         Page 12
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other research organizations. We believe that establishing and maintaining brand
and name recognition is critical for attracting and expanding this targeted
customer base because we believe these targeted customers generally prefer to do
business with established brands and companies. We also believe that the
importance to us of name recognition and reputation will increase as competition
in our market increases. Promotion and enhancement of our brand and name will
depend on the effectiveness of our marketing and advertising efforts and on our
ability to continue providing high-quality products and services. We may not be
successful in either regard. If we are not successful, our ability to generate
revenue will be limited.

Our revenue and profits may decrease if we lose any of our major customers.

Historically, a small number of customers have accounted for a significant
portion of our revenue in any particular period. The loss of a major customer
could harm our business. For the six month period ended June 30, 2001, four of
our customers, AstraZeneca, GlaxoSmithKline, Oxagen Limited and Pfizer,
represented approximately 60% of our total revenue. We anticipate that sales of
our products to a small number of customers will continue to account for a
significant portion of our total revenue. In addition, some of our license
agreements are short-term and may not be renewed by our customers.

Our customer contracts are cancelable with little notice and if we lose any of
these contracts, our revenues and marketing efforts with other customers will be
materially adversely affected.

The contracts with our customers are cancelable by them with little notice. Our
customers do not have any obligation to continue to use our current product or
to purchase additional services from us. Our strategy has been to focus on
potential customers who are considered market leaders in the drug discovery and
development industries. Consequently, we depend on our customers not only for
generating revenue but also for enhancing our marketing efforts with other
potential customers. The loss of any of these contracts would adversely impact
our revenue and operating results, and may affect our marketing efforts with
other customers.

We are developing new products that may be subject to different pricing
strategies from our current products potentially resulting in increased
volatility of our future revenues.

We have limited experience developing new products and in determining the
appropriate pricing strategy for those products. These future products are
anticipated to be sold under perpetual license agreements with recurring annual
support and maintenance fees or in combination with time-based license
agreements. As a result, this pricing strategy may make our future revenues more
volatile than they have been with our existing products that are sold on an
annual subscription fee basis. In addition, we may be subject to uncertain sales
cycles and we may have difficulty estimating our future revenues.

If we are unable to expand our sales and marketing capabilities, we will be
unable to significantly increase our revenue.

We have limited experience in sales and marketing and a small sales and
marketing department. If we are unable to increase our sales and marketing
personnel and efforts, both in the United States and in Western Europe, or
arrange with a third party to perform these services, we will be unable to
significantly increase our revenue. We are currently attempting to hire and
train additional personnel, but we cannot assure you that our sales force will
be sufficiently large or knowledgeable to meaningfully increase our sales and
customer base. Even if we are able to hire additional sales personnel in the
near future, their effectiveness will be limited until they gain sufficient
experience.

Our success depends on the continuing contribution of our key personnel who may
leave us at any time and our ability to integrate new personnel, including
several key members of our management team.

Our future success depends to a significant extent on the continued service of
our key senior management personnel. In particular, the loss of the services of
Teresa W. Ayers, our chief executive officer, or Dr. Thomas Marr, our founder,
President and Chief Scientist, would adversely affect our business development
efforts. Although we have employment agreements with Ms. Ayers and Dr. Marr,
they and any other of our key personnel may leave us at any time. In addition,
we do not have "key person" life insurance policies on any of our employees.

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Several key members of our management team have joined us within the last one to
two years. If we cannot effectively integrate these employees into our business,
or if they cannot work together as a management team to implement our business
strategy, successfully achieving our revenue goals and profitability will be
difficult. If any of our management team left or were seriously injured and
unable to work, it could be costly and time consuming to replace them.

If we cannot attract, retain, motivate and integrate additional skilled
personnel, our ability to compete will be impaired.

We are a small company and we believe many of our current and potential
competitors have more employees than we do. Our success depends in large part on
our ability to attract, retain and motivate highly qualified management and
scientific personnel. We face intense competition for qualified personnel and
the industry in which we compete has a high level of employee mobility. If we
are unable to continue to employ our key personnel or to attract and retain
qualified personnel in the future, our ability to successfully execute our
business plan will be jeopardized and our growth will be inhibited.

Our failure to manage planned growth could adversely affect our ability to
increase revenue and become profitable.

If we do not effectively manage our planned growth, our ability to significantly
increase revenue and become profitable will be limited. Our growth has strained
and will continue to strain our management, financial controls, operations
systems, personnel and other resources. If we do not manage our planned future
growth effectively, our efforts to increase our customer base and product and
service offerings may not be successful. In addition, our planned rapid growth
could adversely affect our ability to provide services and technical support in
a timely manner and in accordance with customer expectations. To manage growth
of our operations, we must:

 .     improve existing and implement new operational, financial and management
      information controls, reporting systems and procedures

 .     hire, train and manage additional qualified personnel

 .     effectively manage multiple relationships with our customers, suppliers
      and other third parties, including our collaborators

We may not be able to install management information and control systems in an
efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations.

Our business will suffer if our product contains defects or does not function as
intended, which would cause our revenues to decline.

Our business would suffer if our product malfunctions or our customers' access
to their information stored on our product is interrupted. In addition, our
product is complex and sophisticated and holds vast amounts of data. As a
result, our product and third-party software incorporated into our product could
contain erroneous data, design defects or software errors that could be
difficult to detect and correct. Software defects could be found in current or
future products. If we fail to maintain the quality and integrity of our
product, we would fail to achieve market acceptance.

If we are unable to maintain a product with adequate security safeguards, our
product will not achieve market acceptance and our business would suffer.

Researchers use our product to analyze proprietary data, sometimes in disparate
locations. Our product must have effective, reliable and secure operations. If
we fail to maintain an effective, reliable and secure product, our customers'
data may be compromised and our customers would lose confidence in our product.
Our revenues and ability to maintain or increase market share would then suffer.

Our business depends on our topographer technology license from Cold Spring
Harbor Laboratory, the loss of which would jeopardize our business.

The Genome Topographer technology license from Cold Spring Harbor Laboratory
provides the intellectual property foundation for our Discovery Manager product.
A breach by us of any of the terms of, or other failure to maintain, this

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license agreement could preclude future sales of Discovery Manager or delay or
prevent the introduction of new products. Ways in which we could breach the
license agreement include (1) uncured monetary breaches, (2) our failure to
comply with United States export laws regarding software exports, (3) any breach
of the confidentiality and proprietary information provisions of the license
agreement, (4) our filing of bankruptcy or the imposition of receivership on our
business, or (5) any impermissible assignment of the license agreement by us.

If we were unable to continue using the Genome Topographer technology license
for any reason, we may not be able to continue our operations. Our ability to
identify and license or develop other equivalent technology is highly uncertain
and, even if we were successful in doing so, the cost and delays of such a
changeover in our base technology would likely cause material harm to our
business. Further, the Chang-Marr algorithm patent included in the Genome
Topographer technology may be challenged, invalidated or circumvented. This
could limit or prevent our ability to make, use or sell this algorithm in our
product. At the date of this filing, we believe we are in compliance with the
terms of this agreement.

Our product currently depends on components licensed from other third parties,
and the failure to maintain these licenses could result in the loss of access to
these components and could delay or suspend our commercialization efforts.

Discovery Manager incorporates technologies which are the subject of proprietary
rights of others. We have obtained licenses for some of these technologies and
may be required to obtain licenses for others. We may not be able to obtain any
necessary licenses for the proprietary technology of other parties on
commercially reasonable terms, or at all. In addition, one or more third parties
whose software or technologies are used in our product might cease to make its
software or other technologies available to us or to update such software or
technologies as appropriate. We may not be able to develop alternative
approaches if we are unable to obtain necessary licenses, or if third-party
software or technologies become unavailable to us or obsolete. We cannot assure
you that our current or future licenses will be adequate for the operation of
our business. The failure to obtain necessary licenses or identify and implement
alternative approaches could have a material adverse effect on our business,
financial condition and results of operations.

Our intellectual property protection may be inadequate, allowing others to use
our technology or similar technologies, reducing our ability to compete.

The steps taken by us to protect our proprietary technology may be inadequate to
prevent misappropriation of our technology by third parties or third parties may
develop similar technology independently. We rely on a combination of trademark,
copyright and trade secret laws, employee and third-party non-disclosure
agreements and other contracts to establish and protect our technology and other
intellectual property rights. However, these agreements may be breached or
terminated, and we may not have adequate remedies for any breach. In addition,
we currently have no patents or patent applications pending, although we do have
an exclusive license to one patent. A third party could copy or otherwise obtain
and use our products or technology without authorization.

Our products could infringe on the intellectual property of others, which may
cause us to engage in costly litigation and, if we are not successful, could
cause us to pay substantial damages and prohibit us from selling our products.

Third parties may assert infringement or other intellectual property claims
against us based on their patents or other intellectual property claims. We may
have to pay substantial damages, possibly including treble damages, for past
infringement if it is ultimately determined that our products infringe a third-
party's patents. We would have to obtain a license to sell our product if our
product infringed another person's intellectual property. We might be prohibited
from selling our product before we obtain a license, which, if available at all,
may require us to pay substantial royalties. Even if infringement claims against
us are without merit, defending a lawsuit takes significant time, may be
expensive and may divert management attention from other business concerns.

Our employees may be bound by confidentiality and other nondisclosure agreements
regarding the trade secrets of their former employers. As a result, our
employees or we could be subject to allegations of trade secret violations and
other similar violations if claims are made that they breached these agreements.

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Our operating results may fluctuate, making it likely that, in some future
quarter or quarters, we will fail to meet analysts' estimates of operating
results or financial performance, causing our stock price to fall.

If revenue declines in a quarter, our earnings will decline because many of our
expenses are relatively fixed. In particular, research and development, sales
and marketing and general and administrative expenses are not affected directly
by variations in revenue. In some future quarter or quarters, our operating
results likely will be below the expectations of securities analysts or
investors. In this event, the market price of our common stock may fall abruptly
and significantly.

We may fail to engage in strategic acquisitions, which could limit our future
growth.

One of our strategies for growth is to engage in selective strategic
acquisitions of key products, technologies or companies. Our ability to conduct
such acquisitions is limited by our ability to identify potential acquisition
candidates, obtain necessary financing and consummate the acquisitions. In the
event we are unable to identify and take advantage of these opportunities, we
may experience difficulties in growing our business. In addition, pursuing
acquisition opportunities could divert our management's attention from our
ongoing business operations and result in decreased operating performance.

If we engage in acquisitions, we may experience significant costs and difficulty
assimilating the operations or personnel of the acquired companies, which could
threaten our future growth.

If we make any acquisitions, we could have difficulty assimilating the
operations, technologies and products acquired or integrating or retaining
personnel of acquired companies. In addition, acquisitions may involve entering
markets in which we have no or limited direct prior experience. The occurrence
of any one or more of these factors could disrupt our ongoing business, distract
our management and employees and increase our expenses. In addition, pursuing
acquisition opportunities could divert our management's attention from our
ongoing business operations and result in decreased operating performance.
Moreover, our ability to become profitable may suffer because of acquisition-
related costs or amortization of intangible assets. Furthermore, we may have to
incur debt or issue equity securities in any future acquisitions. The issuance
of equity securities would dilute our existing stockholders.

We face intense competition, including from internal bioinformatics departments,
and we may not have the resources required to successfully compete.

We face significant competition from the internal bioinformatics departments of
our customers and other companies that are potential customers. Some of our
customers and potential customers have internally developed software to organize
and analyze genomic data. These companies may believe that their software is
adequate for their needs and that our product is unnecessary. In addition,
certain internal departments of a corporation may be resistant to outsourcing
software because it could reduce the departments' budgets.

We face competition from other organizations, as well, including:

  .    other bioinformatics companies

  .    specialized drug discovery software companies

  .    academic and scientific institutions

  .    public and private research organizations

Many of our customers and potential customers and other competitors have much
greater resources and name recognition than we do. Some of our third-party
competitors may offer discounts as a competitive tactic. Moreover, our
competitors may in the future offer broader product lines or technologies or
products that are more commercially attractive than our current or future
products or that may render our technologies or products obsolete.

If our customers and potential customers elect to continue to develop their own
bioinformatics software, or we are unable to compete successfully with our
third-party competitors, then we will be unable to meaningfully improve our
operating results and we may not be able to continue operating our business.

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We experience rapid technological change in our markets. If we do not modify our
products to incorporate new technologies, they may become obsolete and our sales
will suffer.

We compete in a market that is subject to rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. To remain competitive, we must continue to expand
our databases, improve our software, and invest in new technologies in
anticipation of the needs of our customers. Our products could become obsolete
due to the introduction of products containing new technologies, changing
customer requirements or changing industry standards. This would have a
significant negative impact on our revenue generation.

The technological life cycles of our products are difficult to estimate. Our
future success will depend upon our ability to continue to enhance our current
products and to continue to develop and introduce new products that keep pace
with competitive and technological developments and customer demands. If we fail
to develop, market and deliver new products on a timely basis, we may lose
market share, perhaps significantly, and our ability to continue our business
could be seriously jeopardized.

Our current and potential customers primarily consist of biotechnology and
pharmaceutical organizations, which face risks that could affect our ability to
license our products.

We currently derive a substantial portion of our revenue from product licenses
to biotechnology and pharmaceutical organizations. We expect that these
organizations will continue to be our primary source of revenue for the
foreseeable future. If the drug discovery, development and related industries
experience a downturn, our business will be harmed. Thus, our ability to
generate revenue is indirectly subject to risks and uncertainties that could
cause reductions and delays in research and development expenditures within the
drug discovery, development and related industries. These reductions and delays
may result from factors such as:

   .    market-driven pressures on companies to consolidate and reduce costs

   .    reduced revenue or profitability of our current and potential customers

   .    the uncertainty of healthcare reform, including the continuing efforts
        of governmental and third-party payors to contain or reduce the cost of
        health care

   .    changes in regulations of the U.S. Food and Drug Administration or other
        regulatory agencies

These factors are not within our control. In addition, consolidation in the drug
discovery and development industries will reduce the number of our potential
customers and, therefore, may adversely affect our future revenues.

We will not be able to sell our products if the use of genomic information to
develop drugs is not commercially successful.

The development of new drugs based on genomic information is unproven. Few
therapeutic products based on genomic discoveries have been developed and
commercialized. If our customers and potential customers are unable to develop
drugs based on genomic information in general and using our products or services
in particular, then demand for our products will diminish and our ability to
generate revenue and profitability would be significantly harmed.

If ethical and other concerns surrounding the use of genetic information become
widespread, the demand for our products could decrease.

Genetic testing and research has raised ethical issues regarding confidentiality
and the appropriate uses of the resulting information. For these reasons,
governmental authorities may limit or regulate the use of genetic testing or
prohibit testing for genetic predisposition to certain conditions, particularly
for those that have no known cure. Any such action by governmental authorities
could reduce the potential markets for our products, which could seriously harm
our ability to generate revenue.

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<PAGE>

Doing business outside of the United States involves numerous factors that could
negatively affect our financial results.

International operations involve numerous factors not typically present in
domestic operations. If any one or more of these factors adversely affects us
and we cannot effectively manage them, our business, operating results and
financial condition could be significantly harmed. These factors include:

   .    costs of operations in countries outside the United States

   .    licenses, tariffs and other trade barriers

   .    difficulties in staffing and managing remote operations

   .    potentially adverse tax consequences

   .    the burden of complying with multiple and complex laws, regulations and
        treaties

   .    currency fluctuations

   .    political and economic instability

Our stock price may be volatile and your investment in our stock could decline
in value.

The trading price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in price in response to various factors, many of
which are beyond our control, including:

   .    announcements of technological innovations or new commercial products by
        our competitors or us

   .    developments concerning proprietary rights by our competitors or us

   .    developments concerning any development or marketing collaborations

   .    publicity regarding actual or potential medical results relating to
        products under development by our competitors or us

   .    litigation

   .    economic and other external factors, including disasters or crises or

   .    period-to period fluctuations in financial results

In addition, the stock market and the market for technology companies in
particular have experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the performance of those companies.
During the recent drops in value of the Nasdaq National Market, companies with
ongoing losses like us were among the most vulnerable to sharp declines in
value. You may not be able to sell your common stock at a price at or above your
purchase price.

If our stock price is volatile, we may become subject to securities litigation,
which is expensive and could divert our resources.

Many companies with a volatile stock price have been subject to class-action
litigation brought by security holders. If the market value of our common stock
experiences adverse fluctuations, and we become involved in this type of
litigation, we could incur substantial legal costs and our management's
attention could be diverted, causing our business to suffer, regardless of the
outcome of the litigation.

The proceeds from our initial public offering have been invested in interest-
bearing, investment-grade securities that may be subject to market risk.

We have invested our IPO proceeds in interest-bearing, investment-grade
securities that may be subject to interest rate fluctuations and credit risk.
Our investment portfolio is used to preserve our capital until it is required to
fund our business. If interest rate fluctuations and credit risk do occur, then
the principal amount of our investments will decline.

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                                                                         Page 18
<PAGE>

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The primary objective of our investment activities is to preserve principal
while at the same time maximize the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates or a
change in the credit of any companies represented by such securities may cause
the market value of the investment to fluctuate. For example, if we hold a
security that was issued with a fixed interest rate at the then-prevailing rate
and the prevailing interest rate later rises, the market value of our investment
will probably decline. For investments held at June 30, 2001, a 1% change in the
interest rate would change the value of our investments by approximately $1
million. In addition, if we hold a security that was rated on the credit risk of
certain companies and any of these company's credit is downgraded, the market
value of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities. Set forth below is
quantitative, tabular disclosure relating to our current investments:

<TABLE>
<CAPTION>
                                                   Maturity Dates
                                     ------------------------------------------
                                         2001             2002          2003          Total       Fair Value
                                     -----------      -----------   -----------   ------------   ------------
<S>                                  <C>              <C>           <C>           <C>            <C>
      Marketable Debt Securities,
         Principal Values..........  $28,234,000      $64,403,000   $10,319,000   $102,956,000   $104,625,612
      Average Interest Rate........        6.429%           6.632%        5.982%         6.511%
</TABLE>

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                                                                         Page 19
<PAGE>

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

On October 4, 2000, in connection with our initial public offering, a
Registration Statement on Form S-1 (File No. 333-32472) was declared effective
by the Securities and Exchange Commission, pursuant to which 6,440,000 shares of
our common stock were offered and sold for our account at a price of $19 per
share, generating net proceeds of approximately $112.5 million. As of June 30,
2001, we had used approximately $3.8 million of these proceeds. We used
approximately $2.1 million to fund our operations, $900,000 for capital
expenditures, and $833,000 to pay off capital leases and to finance a note
receivable. Prior to the second quarter of 2001, we had funded our operations
and growth from our financings completed prior to our initial public offering.
The remaining $108.6 million has been invested in money market funds as well as
other interest-bearing, investment-grade securities. In subsequent quarters, we
will continue using these resources to further our development of Discovery
Manager and new products, to sustain our sales and marketing activities, and to
fund other general corporate purposes.


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated:  August 10, 2001

                         GENOMICA CORPORATION
                         (Registrant)

                         /s/  Daniel R. Hudspeth
                         ---------------------------------
                         Daniel R. Hudspeth
                         Vice President of Finance, Chief Financial Officer,
                         Secretary and Treasurer
                         (Duly Authorized Officer and Principal Financial and
                         Accounting Officer)

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