##### Table of Contents






FORM 10-K



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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


|           |  |                                                                                                         
|---------- |  | --------------------------------------------------------------------------------------------------------
|          
|(Mark One)
|           |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 78.GIF,
        SECURITIES EXCHANGE ACT OF 1934    
|           |  | For the fiscal year ended December 31, 2000                                                             
|OR        
|           |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        10.GIF, SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period from    to                                                                    

Commission File No. 000-30549

GENOMIC SOLUTIONS INC.

(Exact name of registrant as specified in its
charter)


|                       |  |                         
|---------------------- |  | ------------------------
|                      
|                      
|                      
|                      
|State of Delaware      |  | 38-3383038              
|State of Incorporation |  | I.R.S. Employer I.D. No.

4355 Varsity Drive

Suite E


Ann Arbor, Michigan 48108


(734) 975-4800


(Address of principal executive offices and
telephone number)


Securities Registered Pursuant to Section 12(b) of the Act:

None


Securities Registered Pursuant to Section 12(g) of the Act:

Callable Common Stock, Par Value $.001 Per Share


Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

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

As of March 22, 2001, the
aggregate market value of the Registrants callable common
stock held by non-affiliates of the Registrant was approximately
$52,847,716, determined in accordance with the highest price at
which the stock was sold on such date as reported by the Nasdaq
National Market.

As of March 22, 2001, there
were 23,810,232 shares of the Registrants callable common
stock issued and outstanding and 1,269,841 shares of the
Registrants common stock issued and outstanding.



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TABLE OF CONTENTS



|                                                          |  |  |  |  |  |  |  | 
|--------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                   
|RISK FACTORS                                             
|PART II                                                  
|PART III                                                 
|PART IV                                                  
|SIGNATURES                                               
|EXHIBIT INDEX                                            
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                 
|CONSOLIDATED BALANCE SHEETS                              
|CONSOLIDATED STATEMENTS OF OPERATIONS                    
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|1998 Stock Option Plan                                   
|Executive Employment Agrmt. With Jeffrey Williams        
|2nd Amendment to Lease Agreement                         
|4th Addendum to Lease                                    
|Sublease & Service Agreement                             
|Memorandum of Renewal of Lease Agreement                 
|Lease Dated 3/1/00                                       
|Employment Agreement With Steven J. Richvalsky           
|Employment Agreement With Michael P. Kurek               
|Employment Agreement With Andrew A. Jakimcius            
|Employment Agreement With Shannon M. Richey              
|Employment Agreement With Christine M. Ethier            
|License Agreement                                        
|Consent of Arthur Andersen LLP                           



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Cautionary Statement

This Form 10-K 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. 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 this 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.






PART I


ITEM 1.  BUSINESS

General

Genomic Solutions designs, develops, manufactures, markets and
sells genomic and proteomic instrumentation, software,
consumables and services. Unlike many other life sciences
companies in the DNA microarray and proteomic markets, we offer
integrated systems with demonstrated market acceptance. Our DNA
microarray and proteomic products and systems enable researchers
to perform complex, high-volume experiments at lower costs and
in less time than with traditional techniques. Our customers use
our integrated and automated systems to produce microarrays,
maintain DNA libraries, quantify gene expression levels and
isolate, identify and characterize proteins, thereby
facilitating more rapid and less expensive drug discovery. We
sell our products to pharmaceutical and biotechnology companies,
government agencies, universities and private research
institutions.

Our executive office is located at 4355 Varsity Drive,
Suite E, Ann Arbor, Michigan 48108 and our telephone number
is (734) 975-4800. Genomic Solutions, which is a Delaware
corporation, had 160 full time employees as of December 31,
2000.

Our Strategy

We are a premier provider of integrated DNA microarray and
proteomic systems and services that assist our customers in
analyzing genomic and proteomic data, uncovering biochemical
pathways and studying the mechanisms of disease. Key elements of
our strategy include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lead genomic and proteomic product markets.We intend to
	strengthen our global position in the DNA microarray and
	proteomic markets. To this end, we plan to continue to rapidly
	expand our customer base through investment in our direct sales
	efforts in the United States, United Kingdom and Japan. In other
	markets we currently rely on our sales and marketing
	collaboration with PerkinElmer, Inc. PerkinElmer is a leading
	provider of analytical instrumentation and high throughput
	screening tools for drug discovery with marketing, sales and
	distribution capabilities in over 100 countries.
|
| |  | Enhance our product offering through internal development and
	acquisitions.We intend to continue to improve the
	throughput, reproducibility and sensitivity of our automated DNA
	microarray and proteomic systems through internal research and
	development and acquisitions of complementary companies,
	products and technologies.                                                                                                                                                                                                                                                                             

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Generate recurring revenue.We view consumable products,
	contract research services and product service and support as
	significant opportunities to enhance revenue. Our precast gels,
	GeneMAP preprinted microarrays, reagents and other
	consumables are designed to optimize the performance of both our
	DNA microarray and proteomic systems. We intend to develop
	additional consumables for use with our systems. We also
	generate recurring revenue by providing contract research
	services, training and product service and support to users of
	our products.                                                                                                                                                                                                                                                                                                                     
|
| |  | Facilitate and capitalize on the convergence of gene
	expression analysis and proteomics.While gene expression
	analysis and proteomics are frequently viewed as distinct
	research areas, each provides valuable, but incomplete, data on
	gene and protein function. We believe that the efficient
	analysis of the complex relationships between genomic and
	proteomic data will advance the understanding of biochemical
	pathways and accelerate the discovery of the mechanisms of
	disease, leading to more productive and cost effective drug
	development. We believe that our DNA microarray and proteomic
	systems, in combination with powerful bioinformatic software,
	can be used to produce, analyze and interpret the combined data
	from these two disciplines. We intend to promote, facilitate and
	capitalize on the convergence of gene expression analysis and
	proteomics.

Our Products and Services

Our DNA microarray and proteomic systems enable researchers to
perform complex, large scale gene expression and proteomic
experiments.

Our GeneTAC Biochip System

Our principal system for DNA microarray production and analysis
is the GeneTAC Biochip System. We believe that the
GeneTAC Biochip System is the only commercially available
comprehensive and integrated DNA microarray system. The
instruments comprising the system allow complete gene expression
analysis, including DNA library management, microarray
production, hybridization, imaging, analysis, and results
reporting. Our automated systems-based approach generates highly
reproducible data, facilitates usage and training, minimizes
compatibility problems and allows rapid and efficient analysis.

For customers who prefer not to purchase the entire
GeneTAC Biochip System, we sell each of its components
separately. Each modular component operates independently but is
designed to seamlessly integrate with the other components to
form a comprehensive system.

Our Investigator Proteomic System

As pharmaceutical and biotechnology companies have realized the
potential of proteomics to improve the productivity of the drug
discovery process, they have also demanded research solutions
which provide high quality data and fast turnaround time with
maximum flexibility. We believe we are the first company in the
industry to provide a complete system meeting those research
requirements.

Our Investigator Proteomic System is a complete turn-key
solution for conducting advanced research on a large scale
basis. The system integrates 2-D gel electrophoresis with
mass spectrometry into a highly automated and reproducible
system through a series of robots, automated instruments,
software and reagents. The system is component-based, and can be
purchased one unit at a time or as a complete suite. Each
instrument is designed to function as a part of the larger,
fully integrated system and can be structured to customers
specific research requirements.

Our Contract Research Services

We use our GeneTAC Biochip System and Investigator
Proteomic System to provide contract research services.
Customers may choose to use our contract research services for
various reasons, including a desire to outsource gene expression
and proteomic research, insufficient capacity to perform all
gene expression and proteomic work in their laboratory or lack
of sufficient funds to purchase a DNA microarray or proteomic
system. We believe that our contract research services improve
our market penetration and provide

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Marketing, Sales and Support

Marketing

We market our products to pharmaceutical and biotechnology
companies, government agencies, universities and private
research institutions. Our marketing strategy emphasizes our
integrated systems approach, sophisticated instrumentation,
proprietary consumables and product support. We market our
products through direct sales calls, advertising, marketing
materials, participation in international, national and regional
trade shows, and on our Website at www.genomicsolutions.com. We
emphasize complete system sales and plan to increasingly target
the growing aftermarket for DNA microarrays, precast gels,
reagents, other consumables, support and contract research
services.

In December 1999, we entered into a strategic sales and
marketing alliance with PerkinElmer, a global leader in
analytical instruments and high throughput screening tools for
drug discovery. PerkinElmer is responsible for marketing and
sales of our products outside of our core markets, which include
the United States, the United Kingdom and Japan. PerkinElmer
markets our products at its own expense throughout its
distribution territory. Under this arrangement, our products
continue to be sold under our name and logo but also have the
benefit of the PerkinElmer mark, a widely recognized name in the
life sciences instrumentation market.

Sales

We consider the United States, Japan and the United Kingdom to
be our core markets. Product sales in these markets generated
approximately 81% of our revenues during 2000. We maintain
company facilities and direct sales forces in these markets. We
will continue to invest in expanding our sales presence in these
markets.

PerkinElmer, with a worldwide sales and support network and
distribution in over 100 countries, has been the exclusive
distributor of our products outside of the United States, Japan
and the United Kingdom since December 1999. For the year
2000, sales generated by PerkinElmer accounted for approximately
14% of our revenue and our previous international distributors
that were phased out during 2000 generated approximately 5% of
our revenue. As set forth below in Legal
Proceedings, PerkinElmer has filed a lawsuit against us
requesting an interpretation of its right to cause us to redeem
our callable common stock. The lawsuit does not involve
PerkinElmers distribution rights and obligations.

Support

We consider product service and support to be a critical
component of our long term growth strategy. We believe our
existing customers provide opportunities for additional revenue
through the purchase of service contracts, product upgrades,
training, consumables and additional instruments. Service and
support activities are conducted by our in-house and field
service personnel in the United States, the United Kingdom and
Japan and by PerkinElmer in other markets.

Research and Development

Research and development is an essential component of our
strategy to maintain and strengthen our global position in DNA
microarray and proteomic systems and services. As of
December 31, 2000, we had 47 employees working in research
and development, 16 of whom hold PhD or other advanced degrees.
In 2000, our research and development expenditures were
$5.6 million, representing 30% of total operating
expenditures. We anticipate that research and development
expenditures will continue to increase in the future, but will
decrease when measured as a percentage of sales.

Our research and development activities are focused on new
technology and product development, including improvements to
existing products and development of new products or
applications that capitalize

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Competition

While we are a leading provider of integrated DNA microarray and
proteomic systems, the markets for our products are competitive
and we expect the intensity of competition to increase. We
expect new competitors to enter the market in those areas where
we believe we are the only product or solution provider. Also,
many of our existing competitors, alone or in conjunction with
strategic partners, have greater financial, operational, sales,
marketing and research and development experience than we do.
These competitors and others may have developed products or
technologies of which we are unaware or may in the future
develop technologies or products that render our products
obsolete or non-competitive.

We believe that our principal competitors in the DNA microarray
market are Amersham Pharmacia Biotech and Affymetrix Inc. While
we do not believe that either of these companies offers a DNA
microarray system possessing a level of automation and
integration comparable to the GeneTAC Biochip System, they
do manufacture DNA microarrays and offer DNA microarray imaging,
production and analysis components. We are not aware of any
company offering a system with the integration and automation
demonstrated by the Investigator Proteomic System,
although other companies currently offer, or have announced
their intention to offer, various components. These companies
include Amersham Pharmacia Biotech and Bio-Rad Laboratories.

Our competitors may succeed in producing products that employ
superior technologies or processes, obtain patents for these
products or market their products more effectively than we
market our products. We believe our ability to compete
effectively is dependent, in part, on our ability to continue to
improve the technologies underlying our products and systems to
enable researchers to conduct gene expression and proteomic
research with greater throughput and reproducibility at lower
cost.

Manufacturing

We currently have three production facilities. Robotic and fluid
handling systems manufacturing occurs in our Huntingdon, England
facility, imaging systems manufacturing and engineering occurs
in our Lansing, Michigan facility, and application software, DNA
microarray, and consumable production occurs in our Ann Arbor,
Michigan facility.

For our instrumentation products, we focus on manufacturing
proprietary sub-assemblies, including electronic modules,
mechanical fixtures, and optical assemblies, as well as final
instrument assembly and testing. We contract labor intensive
sub-assemblies of a non-proprietary nature to third party
suppliers. This strategy minimizes labor overhead and maximizes
quality control and space utilization. We either manufacture
critical components or obtain them from a limited number of
third-party manufacturers with which we have developed strong
relationships. For non-critical components, we use multiple
redundant third-party suppliers to guard against part shortages
and component cost increases. We manage purchasing and inventory
using a computerized material resource planning system that is
linked via software to our accounting system.

Intellectual Property

To establish and protect our proprietary technologies and
products, we rely on a combination of patents, copyrights,
trademarks and trade secret laws, as well as confidentiality
provisions in our contracts.

We currently hold three U.S. patents. These patents generally
relate to electrophoretic and imaging technologies. In addition,
we currently have on file eight U.S. patent applications, five
U.S. provisional patent applications, seven Patent Cooperation
Treaty patent applications, and four foreign patent
applications. These

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Generally, United States patents have a term of 17 years
from the date of issue for patents issued from applications
filed with the U.S. Patent Office prior to June 8, 1995,
and 20 years from the application filing date or earlier
claimed priority date in the case of patents issued from
applications filed on or after June 8, 1995. Patents in
most other countries have a term of 20 years from the date
of filing the patent application. Our issued United States
Patents will expire between 2007 and 2011. Our success depends
to a significant degree upon our ability to develop proprietary
product technologies. We intend to continue to file patent
applications as we develop new products and technologies.

Patents may provide a certain level of protection for
intellectual property. However, the assertion of patent
protection involves complex legal and factual determinations and
is uncertain. In addition, the laws governing patentability and
the scope of patent coverage continue to evolve, particularly in
the areas of genomics. As a result, there can be no assurance
that patents will issue from any patent applications. The scope
of any of our issued patents may not be sufficiently broad to
offer meaningful protection. In addition, our patents or patents
licensed to us may be successfully challenged, invalidated,
circumvented or unenforceable so that our patent rights would
not create an effective competitive barrier. Moreover, the laws
of foreign countries may not protect our proprietary rights to
the same extent as do the laws of the United States and Canada.
In light of these factors, our intellectual property positions
bear some degree of uncertainty.

We also rely in part on trade secret protection of our
intellectual property. We attempt to protect our trade secrets
by entering into confidentiality agreements with third parties,
employees and consultants. Employees and consultants also sign
agreements requiring that they assign to us their interests in
patents and copyrights arising from their work for us. However,
it is possible that these agreements may be breached or
invalidated and if so, there may not be an adequate corrective
remedy available. Despite the measures taken to protect
intellectual property, there can be no assurance that third
parties will not breach the confidentiality provisions in
contracts or infringe or misappropriate patents, copyrights,
trademarks, trade secrets and other proprietary rights. In
addition, there can be no assurance that third parties will not
independently discover or invent competing technologies or
reverse engineer our trade secrets, or other technology.
Therefore, the measures taken to protect our proprietary rights
may not be adequate.

We copyright our software, software source code, applications
protocols, operator and service manuals and other documents.

Although we are not a party to any legal proceedings with regard
to intellectual property rights, in the future, third parties
may file claims asserting that our technologies or products
infringe on or misappropriate their intellectual property. We
cannot predict whether third parties will assert these claims
against us or against the licensors of technology licensed to
us, or whether those claims will harm our business. If we are
forced to defend against such claims, whether they are with or
without merit, whether they are resolved in favor of or against
us or our licensors, we may face costly litigation and diversion
of managements attention and resources. As a result of
these disputes, we may have to develop costly non-infringing
technology, or enter into licensing agreements. These
agreements, if necessary, may be unavailable on acceptable
terms, or at all, which could seriously harm our business or
financial condition.

Recent Developments in 2000 since our Initial Public
Offering

In December 2000, we entered into a license agreement with
Affymetrix, Inc. which grants us rights to certain Affymetrix
intellectual property for commercializing low and medium density
DNA microarrays. The license allows us to manufacture, use and
sell low and medium density arrays. This license also allows our
customers to use our equipment to create low to medium density
arrays without the threat of claims of infringement from
Affymetrix. In exchange for the license, Affymetrix will receive
fees and royalty payments on arrays sold by us.

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In October 2000, we entered into a six month option
agreement to purchase all of the outstanding shares of
Fundamental Forces Corporation in exchange for cash and our
callable common stock. Fundamental Forces owns proprietary
technology related to the separation, detection and movement of
biomolecules.

In September 2000, we entered into an agreement with
Research Genetics, a division of Invitrogen Corporation, a
leading supplier of genomic libraries. Research Genetics has
agreed to supply us with access to its library of unknown and
known genes from humans and animal species for printing on
GeneMAP microarrays. This collaborative agreement allows
us to expand our GeneMAP product line to include more
types of pre-printed microarrays. The collaboration also gives
Research Genetics the opportunity to market its products to our
customers.

In September 2000, we entered into a Technology Transfer
Agreement with Thermoquest, Inc., the successor of HD
Technologies, Inc., whereby we transferred all of our rights to
the technology and intellectual property related to Matrix
Assisted Laser Desorption Ionization Time of Flight (MALDI-TOF)
mass spectrometry. The transfer was in exchange for cash and
equipment.

Late in the third quarter of 2000, we opened our new Center for
Proteomics at our headquarters in Ann Arbor, Michigan. This new
facility supports proteomics research and development as well as
contract research and technical services for our proteomics
customers. We relocated our Chelmsford, Massachusetts facility
to Ann Arbor and have consolidated our proteomics operations in
this new facility.

Government Regulation

We are not presently subject to direct governmental regulation
other than the laws and regulations generally applicable to
businesses in the jurisdictions in which we operate.

Employees

As of December 31, 2000, we had 160 full-time employees, 34
of whom hold PhD or other advanced degrees. Approximately 47
employees are engaged in research and development, 44 in
marketing, sales and support, 44 in manufacturing and 25 in
intellectual property, finance and other administrative
functions. We believe our relationship with our employees is
good.






RISK FACTORS


Risks Related to our Business

We have a history of losses and anticipate future losses and
negative cash flow.

We incurred net losses of $8.9 million for the fiscal year
ended December 31, 2000, $11.1 million for the fiscal
year ended December 31, 1999, and $7.8 million for the
fiscal year ended December 31, 1998. As of
December 31, 2000, we had an accumulated deficit of
$42.0 million. We expect to continue to experience
significant operating losses as we increase our expenses in
order to continue our research and development efforts, further
develop our manufacturing capabilities and expand our marketing
and sales force. As a result, we need to generate significant
revenues to achieve and maintain profitability. However, our
continued revenue growth is dependent on many factors beyond our
control, including factors discussed in this risk factors
section, and we may not sustain our revenue growth and we may
become profitable at a different time or we may never become
profitable. Even if we do achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis.

We may need additional capital to support our operations,
which may be unavailable or costly.

Based on our current plans, we believe that our existing cash,
cash equivalents and short-term investments will be sufficient
to fund our operating expenses, debt obligations and capital
requirements, on both a short-term and long-term, greater than
12 months, basis. However, we may need to raise additional
capital to fund our research and development programs, to scale
up manufacturing activities, to expand our

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Our systems and products may fail to maintain or achieve
sufficient market acceptance, which would impair our ability to
generate sales revenue.

The commercial success of our systems and products depends upon
continued and expanding market acceptance of our DNA microarray
and proteomic systems and products by pharmaceutical and
biotechnology companies, academic research centers and
government-funded research laboratories. Market acceptance
depends on many factors, including researchers belief that
our systems are an attractive alternative to current
technologies for the acquisition, analysis and management of
genomic and proteomic information. These potential customers may
be reluctant to accept newer technologies which may require
learning new techniques and procedures and abandoning or
modifying current methodologies with which they are comfortable
and familiar.

The relatively high price of our systems may deter potential
customers from buying our systems.

Our GeneTAC Biochip System is typically sold for $225,000
and our Investigator Proteomic System is typically sold
for $300,000. The costs of our products and systems may deter
potential customers from buying our products. We may be required
by competitive forces or for other reasons to discount the price
of our systems or products to generate sales. Furthermore, our
failure to place sufficient quantities of our systems will have
a material adverse effect on our ability to sell consumables.
Market acceptance of our systems and products and potential
products could be adversely affected by limited funding
available for capital acquisitions by our customers, as well as
internal obstacles to customer approvals for purchases of our
products. Because of these and other factors, we may not be able
to maintain or achieve sufficient market acceptance to become
profitable.

Our products will require additional development to remain
competitive, which we may be unable to achieve in a timely and
cost-effective manner.

While we have sold our products and services commercially, our
currently available DNA microarray and proteomic systems may
require design and functional modifications as scientific
procedures and methods change. As scientific knowledge advances,
we anticipate a need for new instrumentation, software and
consumable products. Any future products will require
significant development, investment and testing. We may need to
undertake costly and time-consuming efforts to achieve these
objectives. We cannot assure you that we will successfully
design, develop, manufacture, market or sell any future products
in a timely and cost-effective manner, if at all, or that we
will be able to sustain or increase sales revenue from our
current systems and products.

Concentration of customers may limit our market and our
ability to achieve sales growth.

We expect that our customers will be concentrated in a limited
number of pharmaceutical and biotechnology companies, academic
research centers and government-funded research laboratories
that can afford our systems. As a result, our financial
performance may depend on large orders from a limited number of
customers, and the loss of, or reduction in, purchase orders
from our customers will impair our sales. If consolidation
trends in the pharmaceutical and biotechnology industries
continue, the number of our current and potential customers
could decrease. If this occurs, our large customers may seek
reductions in the prices of our products and services based on
volume purchases.

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If we fail to achieve and maintain the high manufacturing
standards that our products require, or if we are unable to
develop additional manufacturing capacity, our commercial
opportunity will be reduced or eliminated.

Our DNA microarray and proteomic systems and related products
require careful calibration and precise, high-quality
manufacturing. If we fail to achieve and maintain these high
manufacturing standards, including the incidence of
manufacturing errors, design defects or component failures, we
could experience product recalls or withdrawals, delays or
failures in product testing or delivery, cost overruns or other
problems that will impair our sales. Despite our high
manufacturing standards, we cannot completely eliminate the risk
of errors, defects or failures. If we are unable to manufacture
the components of our GeneTAC Biochip System or
Investigator Proteomic System on a timely basis at
acceptable quality and cost and in commercial quantities, or if
we experience unanticipated technological problems or delays in
production, our commercial opportunity will be reduced or
eliminated.

The sales cycle for our systems is lengthy and we may spend
significant time on sales opportunities with no assurance of
success.

The sales cycle for our systems is typically between three and
six months. We often must make sales presentations to various
departments within a single customer, including research and
development personnel and key management. In addition, we may be
required to negotiate agreements containing terms unique to each
customer. We may expend substantial funds and management effort
with no assurance that we will successfully sell our systems,
products or services to the customer.

We depend on third-party suppliers, and any failure to obtain
product components from these suppliers in a timely manner will
interfere with our ability to produce our products.

The lasers, filters and optics used in our GeneTAC Biochip
Analyzers and the fluid transport mechanism used in our
GeneTAC Hybridization Station are supplied by a limited
group of suppliers. GeneTACTM Biochip products, which
include the GeneTACTM Biochip Analyzer and the
GeneTACTM Hybridization Station, as well as the G3
Library Management System, accounted for approximately 59% of
our 2000 revenue. If we are unable to obtain these parts from
our suppliers, we may be unable to secure an alternative
supplier within a reasonable time period, or on commercially
reasonable terms, if at all. Our reliance on outside vendors
generally, and a sole or a limited group of suppliers in
particular, could also result in reduced control over quality,
pricing and time of receipt of materials and components.

Any reduction, delay or termination of government research
funding could reduce, or cause timing fluctuations in, our
sales.

In 2000, approximately 55% of our sales were made to
researchers, universities, government laboratories and private
foundations whose funding is dependent upon grants from
government agencies like the US National Institutes of Health
and similar domestic and international agencies. Although the
level of research funding has increased during the past several
years, these increases may not continue or research funding may
be reduced. Government funding of research and development is
subject to the political process, which is inherently fluid and
unpredictable. Also, government proposals aiming to reduce or
eliminate budget deficits have sometimes included reduced
allocations or delays or terminations of funding to the National
Institutes of Health and other government agencies that fund
research and development activities. A reduction in government
funding for the National Institutes of Health or other
government research agencies could result in lower sales or
cause fluctuations in our sales and operating results.

If we fail to expand our international presence or our
distribution arrangement with PerkinElmer, Inc. is unsuccessful,
we may lose potential revenues.

We have an agreement with PerkinElmer for the exclusive
marketing, distribution and servicing of our products outside
the United States, Japan and the United Kingdom through
January 1, 2002. In 2000, sales to PerkinElmer were 14% of
our total revenue. If PerkinElmer does not perform well or
otherwise fails to

9



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The risks associated with maintaining international
operations could adversely affect our ability to increase or
sustain international sales.

The sale of our products internationally involves a number of
risks not typically present in domestic sales, including:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | difficulties in staffing and managing foreign operations;                         
|
| |  | costs and risks of deploying systems in foreign countries;                        
|
| |  | changes in regulatory requirements; licenses, tariffs and other
	trade barriers;  
|
| |  | limited protection of intellectual property rights;                               
|
| |  | the burden of complying with a wide variety of complex foreign
	laws and treaties;
|
| |  | potentially adverse tax consequences; and                                         
|
| |  | political and economic instability.                                               

Our international operations also will be subject to the risks
associated with the imposition of legislation and regulations
relating to the import or export of high-technology products.
Tariffs or restrictions upon the importation or exportation of
our products may be implemented by the United States or other
countries which will adversely affect our ability to sustain or
increase our international sales.

We are subject to foreign currency fluctuations which may
affect our operating results.

A significant portion of our business historically has been
conducted in currencies other than the U.S. dollar, which is our
reporting currency. Our agreement with PerkinElmer requires
payment in U.S. currency. As a result, only our business in the
United Kingdom and Japan is currently conducted in foreign
currencies. The United Kingdom and Japan represented 46% of our
total sales in 2000 and may continue to represent a large
portion of our total sales. Currency fluctuations among the U.S.
dollar and the currencies in which we do business have caused
and will continue to cause foreign currency transaction gains
and losses in the period incurred. We cannot predict the effects
of exchange rate fluctuations upon our future operating results
because of the variability of currency exposures and the
potential volatility of currency exchange rates. We may choose
to engage in foreign exchange hedging transactions to manage our
foreign currency exposure, but our strategies may not adequately
protect our operating results from the effects of exchange rate
fluctuations and may expose our business to additional risk and
loss.

Our failure to attract and retain skilled scientists,
technicians and other key personnel could affect our ability to
develop and manufacture our products and provide our
services.

As of December 31, 2000 we employed 160 full time
employees. Our ability to adequately service our customers
depends, in large part, on our ability to hire and retain
scientists and technicians with the skills necessary to keep
pace with continuing changes in genomic and proteomic research.
We believe that there is a shortage of, and significant
competition for, scientists and technicians with the skills and
experience in biochemistry, chemistry and engineering necessary
to perform the services we require. We compete with the research
departments of pharmaceutical companies, biotechnology
companies, contract research companies and research and academic
institutions for new personnel. We cannot assure you that we
will be successful in attracting, retaining or motivating our
scientific and technical personnel. Moreover, the hiring of
additional personnel in product development, manufacturing and
sales and marketing will increase burdens on our management,
operational and financial resources. We generally do not enter
into employment agreements requiring these employees to continue
in our employment for any period of time. Any failure on our
part to hire, train and retain sufficient qualified personnel
would seriously damage our business.

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We face risks associated with acquisitions that will harm our
business if we do not adequately address them.

We have acquired complementary technologies, product lines and
personnel from several companies. This growth has placed, and
may continue to place, a significant strain on our management
and operation. Our ability to manage our growth effectively will
depend on our ability to continue to implement and improve our
operational, management information and financial control
systems and to expand, train and manage our workforce.

We expect to continue from time to time to review potential
acquisition candidates in the ordinary course of our business.
Acquisition candidates may not be available on terms and
conditions acceptable to us. These potential acquisitions will
involve numerous risks, including:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | difficulties and expenses incurred in connection with the
	completion of these acquisitions;                 
|
| |  | the subsequent assimilation of the operations, personnel and
	services or products of the acquired companies;
|
| |  | the loss of momentum in research and product development
	activities;                                        
|
| |  | the difficulty of operating new businesses;                                                                  
|
| |  | the diversion of managements attention from other business
	concerns; and                                   
|
| |  | the potential loss of key employees of the acquired company.                                                 

Acquisitions of foreign companies may also involve the
additional risks of assimilating differences in business
practices and overcoming language and cultural barriers.

Risks Related to Our Industry

We and our customers are subject to significant technological
uncertainty which could result in reduced acceptance and demand
for our products.

Our products, and the research for which they are predominately
used, involve several new and complex technologies. The
instrumentation and software that comprise our systems have only
recently been used in commercial applications. Scientists and
technicians using our products require new technical skills and
training and may experience difficulties with our products. As
our products continue to be used, it is possible that previously
unrecognized defects will emerge. Further, in order for us to
address new applications for our products, we may have to add
features and design new software. If we are unable to validate
or achieve the improvements in our products necessary for their
continued successful commercialization, the demand for our
products will suffer.

The outcomes of research based on technologies using our
products are subject to the risks of failure inherent in the
development of new technologies. These risks include the
possibility that:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | any products based on these technologies are ineffective,
	unreliable or unsafe, or otherwise fail;        
|
| |  | producers will be unable to manufacture the products on a large
	scale or market the products economically;
|
| |  | proprietary rights of third parties will preclude the marketing
	of the products; and                      
|
| |  | third parties will market equivalent or superior products.                                                 

The failure of research and development activities using our
products to result in commercially viable products could reduce
the demand for our products.

We face intense competition which could result in reduced
acceptance and demand for our products.

While we are a leading provider of DNA microarray and proteomic
systems, the gene expression and proteomic research markets are
intensely competitive, highly fragmented and rapidly changing.
We compete

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Currently, our principal competition comes from established
companies and organizations providing products that use existing
technologies which perform many of the same functions for which
we market our systems. These products include a variety of
established assays and tests, including gel-based technologies.
Future competition in the genomic and proteomic research fields
will likely come from existing competitors as well as other
companies seeking to develop new technologies for producing and
analyzing genomic and proteomic information. In addition,
pharmaceutical and biotechnology companies have significant
needs for genomic and proteomic information and may choose to
develop or acquire competing technologies to meet these needs.
If we are unable to compete effectively, there will be reduced
acceptance of and demand for our products.

Many of our competitors have greater financial, technical,
research, marketing, sales, distribution, service and other
resources than we do. Moreover, our competitors may have greater
name recognition and more extensive customer bases than we do,
and they may offer discounts as a competitive tactic. In
addition, several development-stage companies are currently
producing or developing products that compete with or will
compete with our products. Our competitors may develop or market
technologies or products that are more effective or commercially
attractive than our current or future products, or that may
render our technologies and products obsolete.

We may be involved in lawsuits to protect or enforce our
patents, which would be expensive and, if we lose, may cause us
to lose some of our intellectual property rights, which would
reduce our ability to compete in the market.

Our success will depend on our ability to obtain and protect
patents on our technology and to protect our trade secrets. Our
issued and future patents may not afford meaningful protection
for our technology and products. Others may challenge our
patents and, as a result, our patents could be narrowed,
invalidated or unenforceable. In addition, our current and
future patent applications may not result in the issuance of
patents in the United States or foreign countries. Competitors
may develop products similar to ours that do not conflict with
our patents. They may have filed applications or obtained
patents or proprietary rights competitive with or similar to
ours. In order to protect or enforce our patent rights, we may
initiate patent litigation which would be expensive, take
significant time and divert managements attention from
other business concerns. The patent position of biotechnology
firms generally is highly uncertain, involves complex legal and
factual questions, and has recently been the subject of much
litigation. No consistent policy has emerged from the U.S.
Patent and Trademark Office or the courts regarding the breadth
of claims allowed or the degree of protection afforded under
biotechnology patents. In addition, there is a substantial
backlog of biotechnology patent applications at the U.S. Patent
and Trademark Office, and the approval or rejection of patent
applications may take several years.

The rights we rely upon to protect the intellectual property
underlying our products may not be adequate, which could enable
third parties to use our technology, reducing our ability to
compete in the market.

We rely on trade secret protection for some of our confidential
and proprietary information for which we have not sought patent
protection. We believe that we have developed proprietary
technology and processes relating to numerous aspects of our DNA
microarray and proteomic systems. We have taken measures to
protect our proprietary technologies and processes and continue
to explore ways to enhance these protections. We require our
employees, consultants and advisors to execute confidentiality
agreements. However, we cannot guarantee that these agreements
will provide us with adequate protection against improper use or
disclosure of confidential information. Further, others may
independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our
trade secrets.

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Our success depends on our ability to operate without
infringing or misappropriating the proprietary rights of
others.

We cannot be certain that U.S. or foreign patents or patent
applications of other companies do not exist or will not issue
that would materially and adversely affect our ability to
commercialize our products. We may be sued for infringing or
misappropriating the patent or other intellectual property
rights of others. Intellectual property litigation is costly,
even if we prevail. In addition, litigation is time consuming
and could divert management attention and resources away from
our business. If we do not prevail in any litigation, in
addition to any damages we might have to pay, we could be
required to stop the infringing activity or obtain a license
requiring royalty payments. Any required license may not be
available to us on acceptable terms, or at all. In addition,
some licenses may be non-exclusive, and therefore, our
competitors may have access to the same technology licensed to
us. If we fail to obtain a required license or are unable to
design around a patent which we infringe, we may be unable to
sell some of our products.

Ethical concerns surrounding the use of genomic information
and misunderstanding of the nature of our business could
frustrate our ability to develop and sell our existing products
and new products.

Genetic screening of humans is used to determine individual
predisposition to medical conditions. Genetic screening has
raised ethical issues regarding the confidentiality and
appropriate uses of the resulting information. Government
authorities may regulate or prohibit the use of genetic
screening to determine genetic predispositions to medical
conditions. Additionally, the public may disfavor and reject the
use of genetic screening.

Genomic and proteomic research is used to determine the role of
genes and proteins in living organisms. Our products are
designed and used for genomic and proteomic research and drug
discovery and are not designed to be used for genetic screening.
However, it is possible that government authorities and the
public may fail to distinguish between the genetic screening of
humans and genomic and proteomic research. If this occurs, our
products and the processes for which our products are used may
be subjected to government regulations intended to affect
genetic screening. Further, if the public fails to distinguish
between the two fields, it may pressure our customers to
discontinue the research and development initiatives for which
our products are used.

We may not have adequate insurance, and if we are subject to
product liability claims, we may experience reduced demand for
our products or be required to pay damages that exceed our
insurance limitations.

Product liability claims asserted against us, regardless of
their merit or potential outcome, may adversely effect our
reputation, result in reduced demand for our products and make
it more difficult for us to expand our business. Also, we cannot
assure you that our current insurance policies will adequately
protect us or that we can or will maintain our insurance
policies on commercially acceptable terms, or at all.

Risks Related to our Callable Common Stock

Call features for publicly traded stock are unusual, and the
call feature of our stock may affect market price and
liquidity.

As contemplated in our investment agreement with PerkinElmer,
for a period of two years that commenced on October 23,
2000 and is scheduled to end on October 21, 2002,
PerkinElmer has the right to cause us to require the holders of
our callable common stock to sell their shares to us. This call
right is set forth in our certificate of incorporation, as
amended. Rights to cause publicly traded shares to be redeemed
are not typical, and there is insufficient precedent for us to
predict all of the implications of PerkinElmers right to
cause us to repurchase our callable common stock. It is possible
that PerkinElmers right has and will continue to adversely
affect the market price and the liquidity of our callable common
stock.

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The expiration of the call feature of our callable common
stock may cause the market price to decline.

The repurchase right with respect to our callable common stock
requires payment of a premium over the market price if the call
is exercised. We cannot predict how the market price and
liquidity of our callable common stock will be affected when
PerkinElmers option expires. For instance,
PerkinElmers failure to exercise its right could cause the
market price for our callable common stock to decrease
substantially.

The callable feature of our stock may harm your ability to
engage in tax and financial planning.

We may require investors to sell their shares of callable common
stock to us, regardless of whether they want to or if it is
convenient for them. This requirement will remain in place until
PerkinElmers call right expires. Because of market
movements and depending on the price paid for shares, it is
possible that the repurchase price at any given time will be
less than the price that an investor paid for the shares. The
call feature of our stock may make it difficult for investors to
engage in financial or tax planning because they will be unable
to retain their shares if the call is exercised.

Market volatility may adversely affect the market price of
our callable common stock.

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



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in quarterly operating results;                                                
|
| |  | announcements of technological innovations by us or our
	competitors;                                           
|
| |  | new products or services introduced or announced by us or our
	competitors;                                     
|
| |  | changes in financial estimates by securities analysts;                                                          
|
| |  | conditions or trends in the biotechnology, pharmaceutical and
	genomic and proteomic industries;                
|
| |  | announcements by us of significant acquisitions, strategic
	partnerships, joint ventures or capital commitments;
|
| |  | additions or departures of key personnel;                                                                       
|
| |  | future sales of our callable common stock or other securities;
	and                                             
|
| |  | the markets perception of the purchase option for our
	callable common stock.                                  

In addition, the stock market in general, and the Nasdaq
National Market and the market for life science companies in
particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. Further, there
has been particular volatility in the market prices of
securities of biotechnology and life sciences companies. These
broad market and industry factors may seriously harm the market
price of our callable common stock, regardless of our operating
performance. Declines in the value of our callable common stock
could impair our ability to raise additional capital to fund the
commercialization of our products. In the past, following
periods of volatility in the market price of a companys
securities, securities class-action litigation has often been
instituted against that company. This litigation, if instituted
against us, could result in substantial costs and a diversion of
managements attention and resources.

Anti-takeover provisions in our charter documents and under
Delaware law, and PerkinElmers right to cause us to
require the holders of our callable common stock to sell their
shares to us, could make it difficult for a third party to
acquire us.

The anti-takeover provisions in our certificate of
incorporation, our bylaws and Delaware law could make it more
difficult for a third party to acquire us without the approval
of our board of directors.

Additionally, PerkinElmer has the right to require the holders
of our callable common stock to sell their shares to us at a
premium over market price or to match any third party offer that
our board of directors is

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As a result of these provisions in our charter documents and
Delaware law and our agreement with PerkinElmer, we could delay,
deter or prevent a takeover attempt or third party acquisition
that our stockholders consider to be in their best interests,
including a takeover attempt that results in a premium over the
market price. See Legal Proceedings below.

ITEM 2.  PROPERTIES

Facilities

Our principal executive offices and our new Proteomic Center,
which replaces our former office in Chelmsford, Massachusetts,
are located in 23,415 square feet of leased space in Ann Arbor,
Michigan. We also lease 14,500 square feet for our imaging
system manufacturing and engineering operations in Lansing,
Michigan. Our wholly-owned subsidiary in the United Kingdom,
Genomic Solutions Ltd., leases approximately 18,000 square feet
of space in Huntingdon, England for robot and fluid handling
systems development and manufacture as well as marketing, sales,
and support for the United Kingdom. Additionally, our
wholly-owned subsidiary in Japan, Genomic Solutions KK, leases
approximately 4,520 square feet of space in Tokyo for domestic
marketing, sales, and technical support.

ITEM 3.  LEGAL PROCEEDINGS

Legal Proceedings

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

On February 15, 2001, we filed a motion for summary
judgment seeking dismissal of the lawsuit. We believe the
PerkinElmer lawsuit is without merit and we intend to defend our
rights vigorously and aggressively.

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

It is our understanding that Meridian obtained certain
transferable license rights to Molecular Dynamics imaging
technology as part of a 1995 settlement of a patent dispute.
Under the settlement agreement, Molecular Dynamics received
stock in Meridian subject to both put and call rights on the
occurrence of certain events. The license to the technology was
transferred by Meridian to Insight Biomedical Imaging in 1997.
In 1998, we purchased certain assets from Insight, including the
license rights that Insight obtained from Meridian.

Molecular Dynamics claims it has a contractual right to require
Meridian Instruments to repurchase the shares of Meridian issued
to Molecular Dynamics. It further claims that we, as an assignee
of the patent license, have an obligation to honor Molecular
Dynamics desire to have its stock in Meridian repurchased.

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

No matters were submitted to a vote of our security holders
during the fourth quarter of the fiscal year covered by this
report.

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PART II




|        |                                                                        
|------- | -----------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE COMPANYS COMMON EQUITY AND RELATED
	STOCKHOLDER MATTERS

Our callable common stock is traded and quoted on the Nasdaq
National Market (NNM) under the symbol
GNSL. The following table sets forth the high and
low sale prices for our callable common stock as reported on the
NNM for the periods indicated commencing on May 5, 2000,
the date of our initial public offering.

|                                                                   |  |      |        |     |  |  |        | 
|------------------------------------------------------------------ |  | ---- | ------ | --- |  |  | ------ | 
|                                                                   |  | High |        | Low
|                                                                   |  |      |        |    
|Fiscal Year Ended December 31, 2000                                |  |      |        |     |  |  |        | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Second Quarter, commencing on May 5, 2000 and
	ended June 30, 2000 |  |      | 17.375 |     |  |  | 7.875  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Third Quarter ended September 30, 2000                             |  |      | 30.125 |     |  |  | 11.813 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Fourth Quarter ended December 31, 2000                             |  |      | 18.813 |     |  |  | 4.938  | 

On March 22, 2001, the last reported sales price for our
callable common stock as reported by the NNM was $3.28. As of
such date there were approximately 129 holders of record of the
callable common stock. We believe there are a significant number
of beneficial owners of our callable common stock whose shares
are held in street name. We have never paid cash dividends on
our callable common stock or common stock. We currently intend
to retain any earnings for use in our operations and do not
anticipate paying cash dividends in the foreseeable future.

Recent Sales Of Unregistered Securities

Within the period covered by this report, we have issued and
sold unregistered securities in the amounts, at the times and
for the aggregate consideration listed as follows:



| |   |                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2000, we issued 1,269,841 shares of
	Series P Preferred Stock to PerkinElmer for an aggregate
	price of $8,000,000.                                                                                                                   
|
| |  | Upon the closing of our initial public offering in May, 2000, we
	issued 1,552,384 shares of callable common stock upon the
	automatic conversion of warrants issued in connection with the
	subordinated notes issued in April and October 1999.
|
| |  | In March, 2000, we issued 24,655 shares of callable common stock
	in lieu of interest in the amount of $118,426, in connection
	with subordinated notes issued in April and October, 1999.                                                       
|
| |  | In June, 2000, we issued 18,678 shares of callable common stock
	in lieu of interest in the amount of $89,799, in connection with
	subordinated notes issued in April and October 1999.                                                          
|
| |  | During 2000 we issued 968,070 shares of our callable common
	stock and common stock upon the exercise of options to purchase
	such stock for an aggregate consideration of $313,059.                                                             

All of the above securities were issued in private placements in
reliance on Section 4(2) of the Securities Act of 1933, as
amended, including Regulation D promulgated thereunder, or
Rule 701 promulgated under the Securities Act of 1933. No
underwriters were used in connection with any of such issuances.
The recipients of the above-described securities represented
their intention to acquire the securities for investment only
and not with a view to or for sale in connection with any
distribution thereof. Appropriate legends were affixed to the
stock certificates issued in such transactions. All recipients
had adequate access, through employment or other relationships,
to information about us.

Use of Proceeds From Our Initial Public Offering

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 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

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ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data for the five years ended
December 31, 2000 are derived from the audited Consolidated
Financial Statements of the Company. The financial data set
forth below contains only a portion of our financial statements,
and should be read in conjunction with, the Consolidated
Financial Statements and related Notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this Annual Report on Form 10-K.

|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |        |        |  
|------------------------------------------------------------ | ------------------------------------------------------ | ------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------- | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                             |                                                        |                                      
|                                                             |                                                        | Years ended December 31,             
|                                                             |                                                        |                                      
|                                                             |                                                        | 2000                                  |         | 1999   |        | 1998 |         | 1997    |        | 1996
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |     
|                                                             |                                                        |                                      
|                                                             |                                                        | (In thousands, except per share data)
|                                                            
|                                                            
|                                                            
|                                                            
|Consolidated statement of operations data:                   |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|Revenue                                                      |                                                        | $                                     | 19,077  |        |        | $    | 12,092  |         |        | $    | 5,507  |        |        | $ | 2,164  |        |        | $ | 3,257  |       
|                                                            
|                                                            
|                                                            
|                                                            
|Cost of Revenue                                              |                                                        |                                       | 9,374   |        |        |      | 6,990   |         |        |      | 3,266  |        |        |   | 1,063  |        |        |   | 1,311  |       
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             | Gross profit                                           |                                       |         | 9,703  |        |      |         | 5,102   |        |      |        | 2,241  |        |   |        | 1,101  |        |   |        | 1,946  |       
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|Operating Expenses:                                          |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Selling, general and administrative                    |                                       |         | 11,919 |        |      |         | 8,652   |        |      |        | 6,372  |        |   |        | 2,198  |        |   |        | 2,278  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Research and development                               |                                       |         | 5,596  |        |      |         | 4,830   |        |      |        | 3,354  |        |   |        | 942    |        |   |        | 864    |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Restructuring and other unusual charges(1)             |                                       |         | 600    |        |      |         | 438     |        |      |        | 340    |        |   |        | 1,578  |        |   |        |       |       
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             |                                                        | Total operating expenses              |         |        | 18,115 |      |         |         | 13,920 |      |        |        | 10,066 |   |        |        | 4,718  |   |        |        | 3,142  |  
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             |                                                        | Loss from operations                  |         |        | (8,412 | )    |         |         | (8,818 | )    |        |        | (7,825 | ) |        |        | (3,617 | ) |        |        | (1,196 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Total other income (expense)                                 |                                                        |                                       | 558     |        |        |      | (2,324  | )       |        |      | 39     |        |        |   | (261   | )      |        |   | (398   | )     
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             | Loss before taxes and extraordinary items              |                                       |         | (7,854 | )      |      |         | (11,142 | )      |      |        | (7,786 | )      |   |        | (3,878 | )      |   |        | (1,594 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|Benefit from (provision for) income taxes                    |                                                        |                                       |        |        |        |      |        |         |        |      |       |        |        |   | 642    |        |        |   | (6     | )     
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                             | Loss before extraordinary items                        |                                       |         | (7,854 | )      |      |         | (11,142 | )      |      |        | (7,786 | )      |   |        | (3,236 | )      |   |        | (1,600 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|Extraordinary items(2)                                       |                                                        |                                       | (1,050  | )      |        |      |        |         |        |      |       |        |        |   | 1,245  |        |        |   |       |       
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|Net Loss                                                     |                                                        |                                       | (8,904  | )      |        |      | (11,142 | )       |        |      | (7,786 | )      |        |   | (1,991 | )      |        |   | (1,600 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|Non-cash common stock warrant benefit (charge)(3)            |                                                        |                                       | 1,059   |        |        |      | (3,861  | )       |        |      |       |        |        |   |       |        |        |   |       |       
|                                                            
|                                                            
|                                                            
|                                                            
|Deemed dividend upon issuance of Series P preferred stock(4) |                                                        |                                       | (8,000  | )      |        |      |        |         |        |      |       |        |        |   |       |        |        |   |       |       
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|Net loss attributable to common stockholders                 |                                                        | $                                     | (15,845 | )      |        | $    | (15,003 | )       |        | $    | (7,786 | )      |        | $ | (1,991 | )      |        | $ | (1,600 | )     
|                                                             |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|Net loss per share, basic and diluted:                       |                                                        |                                       |         |        |        |      |         |         |        |      |        |        |        |   |        |        |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Loss per share before extraordinary items              |                                       | $       | (0.45  | )      |      | $       | (3.75   | )      |      | $      | (2.71  | )      |   | $      | (6.93  | )      |   | $      | (0.53  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net loss per share                                     |                                       | $       | (0.51  | )      |      | $       | (3.75   | )      |      | $      | (2.71  | )      |   | $      | (4.27  | )      |   | $      | (0.53  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net loss per share attributable to common stockholders |                                       | $       | (0.90  | )      |      | $       | (5.04   | )      |      | $      | (2.71  | )      |   | $      | (4.27  | )      |   | $      | (0.53  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Weighted average common shares                         |                                       |         | 17,526 |        |      |         | 2,974   |        |      |        | 2,876  |        |   |        | 467    |        |   |        | 3,022  |       

|                                     |  |                    |        |      |  |      |        |      |  |      |        |  |  |   |       |  |  |   |        |  
|------------------------------------ |  | ------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ----- |  |  | - | ------ | -
|                                     |  |                   
|                                     |  | As of December 31,
|                                     |  |                   
|                                     |  | 2000               |        | 1999 |  | 1998 |        | 1997 |  | 1996
|                                     |  |                    |        |      |  |      |        |      |  |     
|                                     |  |                   
|                                     |  | (In thousands)    
|                                    
|                                    
|                                    
|                                    
|Consolidated balance sheet data:     |  |                    |        |      |  |      |        |      |  |      |        |  |  |   |       |  |  |   |        |  
|                                    
|                                    
|                                    
|                                    
|Cash and cash equivalents            |  | $                  | 40,159 |      |  | $    | 1,328  |      |  | $    | 2,880  |  |  | $ | 5,089 |  |  | $ | 219    |  
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |                    | 65,224 |      |  |      | 13,858 |      |  |      | 11,694 |  |  |   | 8,579 |  |  |   | 2,615  |  
|                                    
|                                    
|                                    
|                                    
|Total debt                           |  |                    | 1,956  |      |  |      | 11,190 |      |  |      | 2,819  |  |  |   | 901   |  |  |   | 3,425  |  
|                                    
|                                    
|                                    
|                                    
|Total stockholders equity (deficit) |  | $                  | 51,989 |      |  | $    | (9,381 | )    |  | $    | 5,485  |  |  | $ | 5,912 |  |  | $ | (1,556 | )




|    |                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In May 2000 we recorded a one time restructuring charge of
	$600,000 to close the Chelmsford, Massachusetts proteomic
	facility. In 1999 we recorded an unusual charge of approximately
	$438,000 for the write-off of goodwill originating from the
	acquisition of certain assets of Insight Biomedical Imaging. In
	1998 we recorded an unusual charge of approximately $340,000 for
	the write-off of in-process research

19



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##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | and development acquired from ESA, Inc. In 1997 we recorded an
	unusual charge of approximately $1,578,000, consisting of
	approximately $861,000 for the write down of goodwill and
	intangible assets and approximately $328,000 write-off of
	unamortized capitalized software development costs related to
	the merger with B.I. System Corporation and approximately
	$389,000 write-off of in-process research and development
	acquired from PBA Technologies, Ltd.



|    |                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In 2000 we accounted for the amendment to the subordinated notes
	as an extinguishment of debt and recorded an extraordinary loss
	of $1,050,000. In 1997 we recorded an extraordinary gain of
	approximately $1,245,000 on the forgiveness of debt.
|   
|(3) | In 2000 we recorded decretion of approximately $1,059,000 on the
	common stock warrants. In 1999 we recorded accretion of
	approximately $3,861,000 on the common stock warrants.                                                                   
|   
|(4) | In 2000 we recorded a charge of $8,000,000 related to the
	beneficial conversion feature associated with the Series P
	preferred stock.                                                                                                             



|        |                                                                 
|------- | ----------------------------------------------------------------
|ITEM 7. | 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 the
financial statements and the notes to those statements included
elsewhere in this Form 10-K.

Overview

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

We have a limited history of operations, and we anticipate that
our quarterly results will fluctuate for the foreseeable future
due to several factors, including market acceptance of current
and new products, the introduction of new products by our
competitors, the success of our research and development
projects and the timing of significant orders. Our limited
operating history makes it difficult or impossible to accurately
predict future operations.

Results of Operations

Years ended December 31, 2000 and 1999

Revenue

Revenue increased $7.0 million, or 58%, to
$19.1 million in 2000 from $12.1 million in 1999. This
increase in revenue was due primarily to $6.9 million from
sales of DNA microarray and proteomic systems. New product sales
consisted of $3.8 million from our GeneTAC Biochip
System, which includes the G3 Library Management Tool,
GeneTAC Hybridization Station and GeneTAC LS4
Biochip Analyzer, and $3.1 million from our
Investigator Proteomic System, which was first shipped in
June 1999. Increased sales of these products offset the
$245,000 revenue decline associated with our products for
documenting and analyzing one-dimensional separations of DNA and
proteins, which were discontinued in all markets except Japan.
The remainder of our 2000 revenues were attributable to services
and consumables.

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Cost of revenue

Cost of revenue increased $2.4 million, or 34%, to
$9.4 million in 2000 from $7.0 million in 1999. This
increase was due primarily to $1.9 million in increased
cost of materials attributable to increased instrumentation
sales. The remainder of the increase in cost of revenue was
attributable to increased spending on product support, employees
and facilities.

Selling, general and administrative expenses

Selling, general and administrative expenses increased
$3.2 million, or 38%, to $11.9 million in 2000 from
$8.7 million in 1999. Of this increase, $2.1 million
was attributable to salaries, sales commissions and other
employee-related costs due primarily to the addition of
approximately 13 sales, marketing and administrative
personnel and increased sales commissions. The remaining
increase consisted of approximately $653,000 from promotional
activities and approximately $379,000 from increased office
expenses and depreciation expense associated with the hiring of
additional personnel.

Research and development expenses

Research and development expenses increased $766,000, or 16%, to
$5.6 million in 2000 compared to $4.8 million in 1999.
Research and development spending increased due primarily to an
increase in salaries of approximately $909,000 and other
employee related costs.

Restructuring charge

In May 2000, we recorded a restructuring charge to
operations of $600,000 in connection with the closing of our
proteomic services and chemical production facility located in
Chelmsford, Massachusetts. The charge consisted primarily of
$400,000 for employee termination benefits for fifteen employees
and $200,000 for exit costs associated with closing the
facility. The restructuring reserve has been fully utilized and
there is no remaining balance at December 31, 2000. We
anticipate favorable financial, operating and strategic results
from the consolidation of our proteomic operations in Ann Arbor,
Michigan.

Interest expense

Interest expense increased $123,000 in 2000 to $2.6 million
from $2.5 million in 1999. This increase was due primarily
to $6 million of subordinated notes with warrants issued in
April 1999 and $3.5 million of subordinated notes with
warrants issued in October 1999 and the increase in
borrowings under our fixed asset lease line agreement and our
commercial bank borrowing facilities.

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

21



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##### Table of Contents



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

Interest income

Interest income increased $2.6 million in 2000 to
$2.7 million from $111,000 in 1999. Interest income
increased due to higher average cash and cash equivalent
balances in 2000, resulting primarily from the investment of the
net proceeds from our initial public offering which closed on
May 10, 2000, and $8.0 million in gross proceeds from
the sale of preferred stock to PerkinElmer in January 2000.

Benefit from income taxes

We incurred net operating losses in 2000 and 1999, and
consequently, we did not pay any federal income taxes. At
December 31, 2000, we have available net operating loss
carryforwards of approximately $27.4 million, which can be
utilized to offset future taxable income. These net operating
loss carryforwards expire between 2010 and 2020. Additionally,
utilization of net operating loss carryforwards are limited
under Section 382 of the Internal Revenue Code due to
ownership changes, as defined by Section 382, that occurred
in 1997 and as a result of our initial public offering completed
in May 2000. These and other deferred income tax assets are
fully reserved by a valuation allowance due to historical
operating losses. Realization of deferred tax assets is
dependent on future earnings, if any, the timing and amount of
which are uncertain. Accordingly, valuation allowances in
amounts equal to the deferred tax assets have been established
to reflect these uncertainties. See Note 10 of Notes to
Consolidated Financial Statements.

Years ended December 31, 1999 and 1998

Revenue

Revenue increased $6.6 million, or 120%, to
$12.1 million in 1999 from $5.5 million in 1998. This
increase in revenue was due primarily to $5.4 million from
sales of DNA microarray and proteomic systems launched in 1999.
New product sales consisted of $3.7 million from our
GeneTAC Biochip System, GeneTAC Hybridization
Station and Biochip Analyzers and $1.7 million from our
Investigator Proteomic System, which was first shipped in
June 1999. We also sold more Flexys® Robotic
Workstations in 1999 compared to 1998, with unit sales
increasing from 19 to 40. Increased sales of this product offset
the revenue loss associated with our products for documenting
and analyzing one dimensional separations of DNA and proteins,
which were discontinued in all markets except Japan. The
remainder of our 1999 revenues were attributable to services and
consumables.

Cost of revenue

Cost of revenue increased $3.7 million, or 114%, to
$7.0 million in 1999 from $3.3 million in 1998. This
increase was primarily attributable to increased instrumentation
sales and increased spending on product support, employees and
facilities. In 1999, cost of revenue reflected added costs
associated with the initial manufacturing set up and first
production runs for the individual components of our DNA
microarray and proteomic systems. In response to the increase in
the number of products offered and volume of products
manufactured, we moved our United Kingdom operations into a new
facility which more than doubled the prior facility space. As a
result of infrastructure improvements, our cost of revenue grew
at approximately the same rate as our revenues.

Selling, general and administrative expenses

Selling, general and administrative expenses increased
$2.3 million, or 36%, to $8.7 million in 1999 from
$6.4 million in 1998. Of this increase, $1.6 million
was attributable to salaries and other employee related costs.
The remainder of this increase was for promotional activities,
professional services and sales commissions.

22



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Research and development expenses

Research and development expenses grew $1.5 million, or
44%, to $4.8 million in 1999 from $3.4 million in
1998. This increase was primarily attributable to increased
spending of $652,000 on the design and development of our new
products in 1999 and $604,000 of salary and related employee
expenses resulting primarily from hiring approximately nine
engineers and scientists.

Acquisition related and other unusual charges

In 1999, we recorded a charge of $438,000 for the write-off of
goodwill originating from the acquisition of certain assets of
Insight Biomedical Imaging. The primary purpose of the
acquisition was to acquire Insights expertise in
laser-based imaging technology. The assets acquired are used to
produce laser scanning microscope systems used by life science
researchers for generating 3-dimensional images of research
samples. This write-off of goodwill was due to our strategic
decision to no longer market, sell and provide technical support
for the 3-dimensional imaging products produced by Insight. The
last customer maintenance agreement ended in
September 1999. Since that time no further revenue from
these products has been realized.

For the year ended December 31, 1998, we recorded a charge
to operations of $340,000 for the write-off of in-process
research and development in connection with the acquisition of
the 2-D gel electrophoresis and proteomic business of ESA, Inc.

Interest expense

Interest expense increased $2.4 million to
$2.5 million in 1999 from $122,000 in 1998. This increase
was due primarily to $6 million of subordinated notes with
warrants issued in April 1999 and $3.5 million of
subordinated notes with warrants issued in October 1999.
Interest expense also increased as a result of the increase in
borrowings under our fixed asset lease line agreement and our
commercial bank borrowing facilities.

In 1999, interest expense includes amortization expense of
approximately $1,606,000 related to the discount recorded on the
subordinated notes. The discount was being amortized over the
period from the date of issuance to April 2000. The amortization
period of the discount was treated as shorter than the
contractual life of the subordinated notes as the notes
contained a provision that they automatically mature upon the
closing of an initial public offering (originally expected to be
April 2000) and were expected to be repaid with a portion
of the offering proceeds.

Interest income

Interest income decreased $125,000 to $111,000 in 1999 from
$236,000 in 1998. Interest income decreased due to lower average
cash balances in 1999.

Benefit from income taxes

We incurred net operating losses in 1999 and 1998, and,
consequently, we did not pay any federal income taxes.

Liquidity and Capital Resources

At December 31, 2000 our cash and cash equivalents totaled
$40.2 million compared to $1.3 million at
December 31, 1999. In January 2000, we received
$8.0 million in gross proceeds from the sale of preferred
stock to PerkinElmer. Also in January 2000, we received
approximately $575,000 in cash from the sale of our 30%
ownership interest in HD Technologies. In May 2000, we
completed our initial public offering, receiving net proceeds of
approximately $55.1 million, including the
underwriters over-allotment option and after deducting
underwriters discount and commissions and other offering
expenses. Prior to that, we funded our operations with
$23.5 million of private equity, $9.5 million in
subordinated promissory notes with warrants, $3.0 million
from fixed asset lease financing and $32.3 million from
bank borrowings.

23



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##### Table of Contents



Cash used in operations for 2000 was $11.1 million compared
with $9.5 million for the same period in 1999. Cash used in
operations consisted primarily of our net loss of
$8.9 million in 2000 which included non-cash charges of
$965,000 for amortization of discount on subordinated notes with
warrants, $1.1 million for extraordinary loss on
extinguishment of debt, $282,000 gain on sale of investment in
HD Technologies, $382,000 gain on sale of assets, $600,000 for
restructuring, and $1.3 million for depreciation and
amortization expense. The use of cash in operating activities in
2000 was also due to increases of $4.2 million in accounts
receivable, $2.4 million in inventories to accommodate
increased sales and $817,000 in prepaid expenses and other. The
use of cash in operating activities was partially offset by
$1.5 million increase in accounts payable and accrued
liabilities due primarily to increases in cost of revenue and
total operating expenses.

Our investing activities for 2000 used cash of $1.0 million
compared with usage of $1.8 million for the same period in
1999. Cash used in investing activities was attributable to
$1.7 million in capital expenditures primarily for
laboratory equipment offset as a result of receiving
approximately $575,000 in cash from the sale of our 30%
ownership interest in HD Technologies and $168,000 from the sale
of assets. Cash used in 1999 was attributable to
$1.4 million for capital expenditures, which consisted
mainly of purchases of computers, laboratory equipment and
leasehold improvements related to expansion of our laboratories.

Cash provided by financing activities in 2000 was
$50.9 million compared to $9.9 million for the same
period in 1999. Financing activities included the receipt of
$55.1 million in net proceeds, after deducting underwriters
discounts and commissions and other offering expenses, from the
sale of callable common stock in our initial public offering and
receipt of $7.4 million in net proceeds from the sale of
preferred stock in January 2000. Financing activities for
2000 also included the repayment on June 9, 2000 of
$6.0 million subordinated notes with warrants issued in
April 1999 and $3.5 million of subordinated notes with
warrants issued in October 1999.

In March and April 2000, we amended our primary bank
line-of-credit agreement to provide for borrowings up to
$32 million through July 2001. As of December 31,
2000, there were no outstanding borrowings under this line of
credit.

Working capital increased $42.0 million to
$44.0 million at December 31, 2000 from
$2.0 million at December 31, 1999. The increase in
working capital was primarily due to the increase in cash of
$38.8 million as a result of cash proceeds received from
our initial public offering, the sale of preferred stock to
PerkinElmer, the sale of our 30% ownership interest in HD
Technologies and the sale of property and equipment. Our working
capital increase was also due to increases of $4.0 million
in accounts receivable and $2.1 million in inventory due to
our growth in revenue and operations, $829,000 in prepaid
expenses and other current assets, and a decrease of
$1.8 million in our lines or credit, partially offset by
increases of $5.4 million in accounts payable and accrued
liabilities which includes accrued license fees associated with
license agreements entered into during 2000.

As of December 31, 2000, we had an aggregate
$2.0 million in future obligations of principle payments
under capital leases and other long-term debt, of which $754,000
is to be paid within the next twelve months.

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



|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates

The primary objective of our investment activities is to
preserve capital until it is required to fund operations while
at the same time maximizing the income we receive from our
investments without

24



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##### Table of Contents





Foreign currency rate fluctuations

The local currency for our subsidiary in the United Kingdom is
the British pound sterling and the local currency for our
subsidiary in Japan is the Japanese yen. We have converted the
British pound sterling and the Japanese yen to the U.S. dollar
using the exchange rate in effect at the balance sheet date and
have used the average exchange rate for the period for income
statement items. The effects of conversion are recorded as a
separate component of stockholders equity. Our agreement
with PerkinElmer requires payment in U.S. currency. As a result,
only business in the United Kingdom and Japan by our
subsidiaries will continue to be conducted in foreign
currencies. Exchange gains and losses are recorded using the
actual exchange differences on the date of the transaction. We
have not taken any action to reduce our exposure to changes in
foreign currency exchange rates, such as options or futures
contracts, with respect to transactions with our foreign
subsidiaries or customers. The net tangible assets of our
British subsidiary, without respect to long term debt, were
approximately $8.1 million at December 31, 2000. A
hypothetical 10%, decrease in the value of the British pound
sterling relative to the U.S. dollar would result in an
unrealized foreign exchange translation loss of approximately
$815,000. The net tangible assets of our Japanese subsidiary
were approximately $317,000 at December 31, 2000. A
hypothetical 10% decrease in the value of the Japanese yen
relative to the U.S. dollar would result in an unrealized
foreign exchange translation loss of approximately $32,000.
Additionally, a portion of our long-term debt is denominated in
British pound sterling. If the British pound sterling increases
in value relative to the U.S. dollar before repayment, we will
have to pay more cash to retire the debt. A hypothetical 10%
increase in the value of the British pound sterling relative to
the U.S. dollar would result in an unrealized foreign currency
transaction loss of approximately $6,000.

Foreign currency transaction gain (loss) resulting from
product and service sales in foreign denominated currencies
totaled approximately $(82,000), $113,000 and $(11,000) in
fiscal 2000, 1999 and 1998.

Inflation

We do not believe that inflation has had a material impact on
our business or operating results during the periods presented.

Recent Accounting Pronouncements

We adopted Financial Accounting Standards Board Interpretation
No. 44, Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion
No. 25, effective July 1, 2000, except for
certain interpretations which were effective December 15,
1998 and January 12, 2000. There was no impact on our
consolidated financial position or results of operations.

We adopted Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition, effective
October 1, 2000. There was no impact on our consolidated
financial position or results of operations.

Various accounting pronouncements have been issued but which are
not effective including, but not limited to, Statement of
Financial Accounting Standards Nos. 133 and 138,
Accounting for Derivative Instruments and Hedging
Activities, which is effective for fiscal years beginning
after June 15, 2000. Management expects that adoption of
these pronouncements will have little, if any, impact on our
consolidated financial position or results of operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Refer to the Index on Page F-1 of the Financial Report included
herein.

25



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##### Table of Contents





|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
	AND FINANCIAL DISCLOSURE

None.






PART III


The information required by Items 10, 11, 12 and 13
will be included in our proxy statement for our Annual Meeting
of Shareholders to be held in 2001, and is incorporated herein
by reference.






PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K

(a)  The following documents are filed herewith as part of
this Form 10-K:



| |                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)  A list of the financial statements required to be
	filed as a part of this Form 10-K is shown in the
	Index to the Financial Statements included in
	Part II, Item 8 of this report.                                                                                                                                     
|
| | (2)  Schedules other than those listed in the Index
	to the Financial Statements contained in Part II,
	Item 8 of this report are omitted because of the absence of
	the conditions under which they are required or because the
	information required is included in the consolidated financial
	statements or notes thereto.
|
| | (3)  A list of the exhibits required by Item 601 of
	Regulation S-K to be filed as a part of this Form 10-K
	is shown on the Exhibit Index filed herewith.                                                                                                                                                                    

(b)  Reports on Form 8-K

None.

26



---



##### Table of Contents








SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 28, 2001



| |                       
| | ----------------------
| | GENOMIC SOLUTIONS INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ JEFFREY S. WILLIAMS

| |                                   
| | ----------------------------------
| |                                   
| | Jeffrey S. Williams, President and
| | Chief Executive Officer           



| |     |                         
| | --- | ------------------------
| | By: | /s/ STEVEN J. RICHVALSKY

| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                       
| | Steven J. Richvalsky, Chief Financial Officer, Executive Vice
	President and Treasurer (Principal Financial Officer and
	Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed by
the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                                 |  |                                                 |  |      |                | 
|------------------------------------------------ |  | ----------------------------------------------- |  | ---- | -------------- | 
|Name                                             |  | Title                                           |  | Date
|                                                 |  |                                                 |  |     
|/s/ JEFFREY S. WILLIAMSJeffrey S. Williams       |  | President, Chief Executive Officer and Director |  |      | March 28, 2001 | 
|/s/ ROBERT G. SHEPLERRobert G. Shepler           |  | Chairman of the Board of Directors              |  |      | March 28, 2001 | 
|/s/ J. MATTHEW MACKOWSKIJ. Matthew Mackowski     |  | Director                                        |  |      | March 28, 2001 | 
|/s/ DANIEL J. MITCHELLDaniel J. Mitchell         |  | Director                                        |  |      | March 28, 2001 | 
|/s/ DAMION E. WICKER, M.D.Damion E. Wicker, M.D. |  | Director                                        |  |      | March 28, 2001 | 
|/s/ P. NICHOLAS KINGP. Nicholas King             |  | Director                                        |  |      | March 28, 2001 | 

27



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##### Table of Contents








EXHIBIT INDEX


|            |           |             |  |                                                                                                                                                     
|----------- | --------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |           | Description
|            |           |            
|            | (1)2.1    |             |  | Agreement and Plan of Merger between Genomic Solutions Inc. and
	B.I. Systems Corporation dated December 24, 1997                                   
|            | (1)2.2    |             |  | Governance Agreement between PerkinElmer, Inc. and Genomic
	Solutions Inc. dated May 10, 2000.                                                      
|            | (1)2.3    |             |  | Investor Agreement between Genomic Solutions Inc. and the former
	shareholders of PBA Technology Limited, dated December 19,
	1997                  
|            | (1)2.4(a) |             |  | Investment Agreement between Genomic Solutions and PerkinElmer,
	Inc. dated December 14, 1999                                                       
|            | (1)2.4(b) |             |  | First Amendment to the Investment Agreement between Genomic
	Solutions and PerkinElmer, Inc.                                                        
|            | (1)2.5    |             |  | Asset Purchase Agreement between B.I. Systems Corp. and
	Biophotonics Corp., dated June 27, 1997                                                    
|            | (1)2.6    |             |  | Agreement for the Sale and Purchase of the Entire Issued Share
	Capital of PBA Technology Limited, dated December, 1997                             
|            | (1)2.7    |             |  | Asset Purchase Agreement between Genomic Solutions Inc. and
	Insight Biomedical Imaging, Inc., dated April 22, 1998                                 
|            | (1)2.8    |             |  | Asset Purchase Agreement between Genomic Solutions Inc. and ESA,
	Inc., dated October 13, 1998                                                      
|            | (1)3.1    |             |  | Bylaws                                                                                                                                              
|            | (1)3.2    |             |  | Third Amended and Restated Certificate of Incorporation                                                                                             
|            | (1)3.3    |             |  | Audit Committee Charter                                                                                                                             
|            | (1)3.4    |             |  | Amended and Restated Stockholders Agreement dated as of
	January 25, 2000, among Genomic Solutions Inc. and certain
	of its stockholders            
|            | (1)4.1    |             |  | Registration Rights Agreement among Genomic Solutions Inc. and
	certain of its warrantholders, dated April 23, 1999, as
	amended on October 28, 1999
|            | (1)4.2    |             |  | Warrant between Genomic Solutions Inc. and ESA, Inc., dated
	October 13, 1998                                                                       
|            | (1)4.3    |             |  | Form of Amended and Restated Callable Warrant between Genomic
	Solutions Inc. and ESA, Inc.                                                         
|            | (1)4.4    |             |  | Registration of Rights Agreement among Genomic Solutions Inc.
	and Jeffrey S. Williams                                                              
|            | *(1)10.1  |             |  | Sales, Marketing and Distribution Agreement between Genomic
	Solutions Inc. and PerkinElmer, Inc., dated December 14,
	1999                         
|            | (1)10.2   |             |  | Form of Indemnification Agreement                                                                                                                   
|            | (1)10.2   |             |  | B.I. Systems Corporation 1994 Omnibus Equity Incentive Plan, as
	amended                                                                            
|            | (1)10.3   |             |  | 1998 Stock Option Plan, as amended                                                                                                                  
|            | 10.3(a)   |             |  | Second Amendment to 1998 Stock Option Plan                                                                                                          
|            | (1)10.4   |             |  | 1998 Non-Employee Director and Consultant Stock Option Plan, as
	amended                                                                            
|            | (1)10.5   |             |  | 2000 Employee Stock Purchase Plan                                                                                                                   
|            | (1)10.6   |             |  | Executive Employment Agreement between Genomic Solutions Inc.
	and Jeffrey Williams, dated January 1, 2000                                          
|            | 10.6(a)   |             |  | Addendum to Employment Agreement between Genomic Solutions Inc.
	and Jeffrey Williams, effective January 1, 2001                                    
|            | (1)10.7   |             |  | Promissory Note between Jeffrey S. Williams and Genomic
	Solutions Inc., dated January 1, 1998                                                      



---



##### Table of Contents



|            |          |             |  |                                                                                                                                                  
|----------- | -------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |          | Description
|            |          |            
|            | (1)10.8  |             |  | Promissory Note between Jeffrey S. Williams and Genomic
	Solutions Inc., dated February 1, 2000                                                  
|            | (1)10.9  |             |  | Termination Agreement between Genomic Solutions Inc. and Dr.
	Kevin Auton, dated January 29, 2000                                                
|            | (1)10.10 |             |  | Employment Agreement between Genomic Solutions Inc. and Dr.
	Kevin Auton, dated December 9, 1998                                                 
|            | (1)10.11 |             |  | Consulting Agreement between Genomic Solutions Inc. and P.
	Nicholas King, dated January 4, 1996                                                 
|            | (1)10.12 |             |  | Line of Credit between Genomic Solutions Inc. and Comerica Bank,
	dated August 10, 1998, as amended                                              
|            | (1)10.13 |             |  | Variable Rate Master Revolving Note between Genomic Solutions
	Inc. and Comerica, dated March 24, 2000                                           
|            | (1)10.14 |             |  | Security Agreement between Genomic Solutions Inc. and Comerica
	Bank, dated March 24, 2000                                                       
|            | (1)10.15 |             |  | Variable Rate Master Revolving Note between Genomic Solutions
	Inc. and Comerica, dated April 28, 2000                                           
|            | (1)10.16 |             |  | Lease between Genomic Solutions Inc. and Dart Container
	Corporation of Michigan, dated July 22, 1998                                            
|            | 10.16(a) |             |  | Second Amendment to Lease Agreement between Genomic Solutions
	Inc. and Dart Container Corporation of Michigan, dated
	June 1, 2000              
|            | (1)10.17 |             |  | Lease between Genomic Solutions Inc. and Highland Industrial
	Properties, L.L.C., dated August 7, 1997                                           
|            | 10.17(a) |             |  | Fourth Addendum to Lease between Genomic Solutions Inc. and
	Highland Industrial Properties, L.L.C., dated May 17, 2000                          
|            | 10.18    |             |  | Sublease and Service Agreement between Genomic Solutions Inc.
	and Advanced Modular Power Systems, Inc., dated January 1,
	2001                  
|            | (1)10.19 |             |  | Lease between Genomic Solutions Ltd and Winterhur Life UK
	Limited, dated April 16, 1999                                                         
|            | (1)10.20 |             |  | Lease Agreement between Motonori Akahori (on behalf of Genomic
	Solutions KK) and Chuo Tochi K.K., dated April 21, 1998                          
|            | 10.20(a) |             |  | Memorandum of Renewal of Lease Agreement between Motonori
	Akahori (on behalf of Genomic Solutions KK) and Chuo Tochi K.K.,
	dated April 21, 1998
|            | 10.20(b) |             |  | Lease between Genomic Solutions KK and Office Kitawaki Y.K.
	dated March 1, 2000                                                                 
|            | (1)10.21 |             |  | Master Lease Agreement with TransAmerica Business Credit
	Corporation, dated June 24, 1998, as amended                                           
|            | (1)10.22 |             |  | Genomic Solutions Limited Sale of Shares in HD Technologies
	Limited, dated January 25, 2000                                                     
|            | (1)10.23 |             |  | Business Loan Agreement among Genomic Solutions Inc. and certain
	lenders, dated April 23, 1999, as amended                                      
|            | (1)10.24 |             |  | Business Loan Agreement among Genomic Solutions Inc. and certain
	lenders, dated October 28, 1999, as amended                                    
|            | 10.25    |             |  | Employment Agreement between Genomic Solutions Inc. and Steven
	J. Richvalsky, dated as of November 1, 2000.                                     
|            | 10.26    |             |  | Employment Agreement between Genomic Solutions Inc. and
	Michael P. Kurek, dated as of November 1, 2000.                                         



---



##### Table of Contents



|            |         |             |  |                                                                                                                                                                                                                                                                                                                                           
|----------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |         | Description
|            |         |            
|            | 10.27   |             |  | Employment Agreement between Genomic Solutions Inc. and
	Andrew A. Jakimcius, dated as of November 1, 2000.                                                                                                                                                                                                                               
|            | 10.28   |             |  | Employment Agreement between Genomic Solutions Inc. and
	Shannon M. Richey, dated as of November 1, 2000.                                                                                                                                                                                                                                 
|            | 10.29   |             |  | Employment Agreement between Genomic Solutions Inc. and
	Christine M. Ethier, dated as of November 1, 2000.                                                                                                                                                                                                                               
|            | 10.30** |             |  | License Agreement between Affymetrix, Inc. and Genomic Solutions
	Inc., dated December 28, 2000.                                                                                                                                                                                                                                          
|            | (1)21.1 |             |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                      
|            | 23.1    |             |  | Consent of Arthur Andersen LLP, Independent Public Accountants                                                                                                                                                                                                                                                                            
|            | 24.1    |             |  | Power of Attorney (included on signature page)                                                                                                                                                                                                                                                                                            
|            | 99      |             |  | Information required by Form 11-K with respect to the
	Genomic Solutions Inc. Employee Stock Purchase Plan will be
	filed as an amendment to this Annual Report on Form 10-K within
	120 days of the end of the fiscal year of the plan
	(December 31) as permitted by Rule 15d-21 under the
	Securities Exchange Act of 1934, as amended.






|    |                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Genomic Solutions Inc.s
	registration statement on Form S-1, as amended (File
	No. 333-30246).                                   
|   
|*   | Confidential treatment granted with respect to portions of this
	Exhibit.                                                                                      
|   
|**  | Certain information has been omitted and filed separately with
	the Commission. Confidential treatment has been requested with
	respect to the omitted portion.



---



##### Table of Contents



GENOMIC SOLUTIONS INC.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

|                                                          |  |      |     | 
|--------------------------------------------------------- |  | ---- | --- | 
|                                                          |  | Page
|                                                          |  |     
|Report of Independent Public Accountants                  |  |      | F-2 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Balance Sheets                               |  |      | F-3 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Statements of Operations                     |  |      | F-4 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Statements of Stockholders Equity (Deficit) |  |      | F-5 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Statements of Cash Flows                     |  |      | F-7 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Notes to Consolidated Financial Statements                |  |      | F-8 | 

F-1



---



##### Table of Contents



GENOMIC SOLUTIONS INC.







REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of



We have audited the accompanying consolidated balance sheets of
GENOMIC SOLUTIONS INC. (a Delaware corporation) AND
SUBSIDIARIES as of December 31, 2000 and 1999, and the
related consolidated statements of operations,
stockholders equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Genomic Solutions Inc. and subsidiaries as of
December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.

Arthur Andersen LLP

Detroit, Michigan,



F-2



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##### Table of Contents



GENOMIC SOLUTIONS INC.







CONSOLIDATED BALANCE SHEETS


|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |         |        |  
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | - | ------------ | ------ |  | ----- | ------- | ------ | -
|                                               |                                                                                                                                                                                                                                                                                                                | December 31,                                         |   | December 31,
|                                               |                                                                                                                                                                                                                                                                                                                | 2000                                                 |   | 1999        
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |             
|                                               |                                                                                                                                                                                                                                                                                                                |                                                     
|                                               |                                                                                                                                                                                                                                                                                                                | (in thousands, except                               
|                                               |                                                                                                                                                                                                                                                                                                                | per share data)                                     
|                                              
|                                              
|                                              
|                                              
|ASSETS                                         |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                              
|                                              
|                                              
|                                              
|Current Assets:                                |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents                                                                                                                                                                                                                                                                                      |                                                      | $ | 40,159       |        |  | $     | 1,328   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, net                                                                                                                                                                                                                                                                                       |                                                      |   | 7,788        |        |  |       | 3,812   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories                                                                                                                                                                                                                                                                                                    |                                                      |   | 5,734        |        |  |       | 3,645   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Prepaid expenses and other                                                                                                                                                                                                                                                                                     |                                                      |   | 1,114        |        |  |       | 285     |       
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                               |                                                                                                                                                                                                                                                                                                                | Total current assets                                 |   |              | 54,795 |  |       |         | 9,070  |  
|                                              
|                                              
|                                              
|                                              
|                                               | Property and equipment, net                                                                                                                                                                                                                                                                                    |                                                      |   | 4,735        |        |  |       | 3,105   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Goodwill, net                                                                                                                                                                                                                                                                                                  |                                                      |   | 954          |        |  |       | 1,253   |       
|                                              
|                                              
|                                              
|                                              
|                                               | License fees, net                                                                                                                                                                                                                                                                                              |                                                      |   | 4,524        |        |  |       |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Other assets                                                                                                                                                                                                                                                                                                   |                                                      |   | 216          |        |  |       | 430     |       
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                               |                                                                                                                                                                                                                                                                                                                | Total assets                                         |   | $            | 65,224 |  |       | $       | 13,858 |  
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                              
|                                              
|                                              
|                                              
|Current Liabilities:                           |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Lines of credit                                                                                                                                                                                                                                                                                                |                                                      | $ |             |        |  | $     | 1,800   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of long-term debt                                                                                                                                                                                                                                                                              |                                                      |   | 754          |        |  |       | 712     |       
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable                                                                                                                                                                                                                                                                                               |                                                      |   | 3,711        |        |  |       | 2,248   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued liabilities                                                                                                                                                                                                                                                                                            |                                                      |   | 6,067        |        |  |       | 2,087   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred revenue                                                                                                                                                                                                                                                                                               |                                                      |   | 293          |        |  |       | 173     |       
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                               |                                                                                                                                                                                                                                                                                                                | Total current liabilities                            |   |              | 10,825 |  |       |         | 7,020  |  
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|Long-Term Liabilities:                         |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Subordinated debt                                                                                                                                                                                                                                                                                              |                                                      |   |             |        |  |       | 7,526   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Long-term debt, less current portion                                                                                                                                                                                                                                                                           |                                                      |   | 1,202        |        |  |       | 1,152   |       
|                                              
|                                              
|                                              
|                                              
|                                               | Other long-term liabilities                                                                                                                                                                                                                                                                                    |                                                      |   | 1,208        |        |  |       | 100     |       
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                               |                                                                                                                                                                                                                                                                                                                | Total long-term liabilities                          |   |              | 2,410  |  |       |         | 8,778  |  
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|Common Stock Warrants                          |                                                                                                                                                                                                                                                                                                                |                                                      |  |              |        |  | 7,441 |        
|                                              
|                                              
|                                              
|                                              
|Commitments and Contingencies (see Note 16)    |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                              
|                                              
|                                              
|                                              
|Stockholders Equity (Deficit):                |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                              
|                                              
|                                              
|                                              
|                                               | Convertible preferred stock, $0.001 par value; 15,000  and
	10,000 shares authorized at December 31, 2000 and
	1999, respectively; zero and 6,901 shares issued and
	outstanding at December 31, 2000 and 1999, respectively;
	aggregate liquidation preference of approximately $18,038 at
	December 31, 1999 |                                                      |   |             |        |  |       | 7       |       
|                                              
|                                              
|                                              
|                                              
|                                               | Callable common stock, $.001 par value; 40,000 shares
	authorized; 23,758 and 3,055 shares issued and outstanding
	at December 31, 2000 and 1999, respectively                                                                                                                                                 |                                                      |   | 24           |        |  |       | 3       |       
|                                              
|                                              
|                                              
|                                              
|                                               | Common stock, $.001 par value; 40,000 shares authorized;
	1,270 and zero shares issued and outstanding at
	December  31, 2000 and 1999, respectively                                                                                                                                                           |                                                      |   | 1            |        |  |       |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Additional paid-in capital                                                                                                                                                                                                                                                                                     |                                                      |   | 94,317       |        |  |       | 16,832  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Notes receivable                                                                                                                                                                                                                                                                                               |                                                      |   | (129         | )      |  |       | (53     | )     
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred compensation related to stock options                                                                                                                                                                                                                                                                 |                                                      |   | (98          | )      |  |       | (124    | )     
|                                              
|                                              
|                                              
|                                              
|                                               | Retained deficit                                                                                                                                                                                                                                                                                               |                                                      |   | (41,955      | )      |  |       | (26,110 | )     
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated other comprehensive income (loss)                                                                                                                                                                                                                                                                  |                                                      |   | (171         | )      |  |       | 64      |       
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                               |                                                                                                                                                                                                                                                                                                                | Total stockholders equity (deficit)                 |   |              | 51,989 |  |       |         | (9,381 | )
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        
|                                               |                                                                                                                                                                                                                                                                                                                | Total liabilities and stockholders equity (deficit) |   | $            | 65,224 |  |       | $       | 13,858 |  
|                                               |                                                                                                                                                                                                                                                                                                                |                                                      |   |              |        |  |       |        

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

F-3



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##### Table of Contents



GENOMIC SOLUTIONS INC.







CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |        |        |  
|--------------------------------------------------------- | ----------------------------------------------------------------------------- | ----------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------- | ------- | - | ------ | ------ | ------ | -
|                                                          |                                                                               |                                          
|                                                          |                                                                               | Years ended December 31,                 
|                                                          |                                                                               |                                          
|                                                          |                                                                               | 2000                                      |         | 1999   |        | 1998
|                                                          |                                                                               |                                           |         |        |        |     
|                                                          |                                                                               |                                          
|                                                          |                                                                               | (in thousands, except per share data)    
|                                                         
|                                                         
|                                                         
|                                                         
|Revenue:                                                  |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Product revenue                                                               |                                           | $       | 18,215 |        |      | $       | 11,282  |         |   | $      | 4,931  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Service revenue                                                               |                                           |         | 862    |        |      |         | 810     |         |   |        | 576    |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          |                                                                               | Total revenue                             |         |        | 19,077 |      |         |         | 12,092  |   |        |        | 5,507  |  
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|Cost of Revenue:                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cost of product revenue                                                       |                                           |         | 8,972  |        |      |         | 6,570   |         |   |        | 2,971  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cost of service revenue                                                       |                                           |         | 402    |        |      |         | 420     |         |   |        | 295    |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          |                                                                               | Total cost of revenue                     |         |        | 9,374  |      |         |         | 6,990   |   |        |        | 3,266  |  
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          |                                                                               | Gross profit                              |         |        | 9,703  |      |         |         | 5,102   |   |        |        | 2,241  |  
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|Operating Expenses:                                       |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Selling, general and administrative                                           |                                           |         | 11,919 |        |      |         | 8,652   |         |   |        | 6,372  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Research and development                                                      |                                           |         | 5,596  |        |      |         | 4,830   |         |   |        | 3,354  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Restructuring and other unusual charges                                       |                                           |         | 600    |        |      |         | 438     |         |   |        | 340    |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          |                                                                               | Total operating expenses                  |         |        | 18,115 |      |         |         | 13,920  |   |        |        | 10,066 |  
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          |                                                                               | Loss from operations                      |         |        | (8,412 | )    |         |         | (8,818  | ) |        |        | (7,825 | )
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|Other Income (Expense):                                   |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Interest expense                                                              |                                           |         | (2,599 | )      |      |         | (2,476  | )       |   |        | (122   | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Interest income                                                               |                                           |         | 2,657  |        |      |         | 111     |         |   |        | 236    |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Gain on sale of investment                                                    |                                           |         | 282    |        |      |         |        |         |   |        |       |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Gain on sale of assets                                                        |                                           |         | 382    |        |      |         |        |         |   |        |       |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other expense, net                                                            |                                           |         | (164   | )      |      |         | 41      |         |   |        | (75    | )     
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          |                                                                               | Total other income (expense)              |         |        | 558    |      |         |         | (2,324  | ) |        |        | 39     |  
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          |                                                                               | Loss before taxes and extraordinary items |         |        | (7,854 | )    |         |         | (11,142 | ) |        |        | (7,786 | )
|                                                         
|                                                         
|                                                         
|                                                         
|Benefit for Income Taxes                                  |                                                                               |                                           |        |        |        |      |        |         |         |   |       |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          | Loss before extraordinary items                                               |                                           |         | (7,854 | )      |      |         | (11,142 | )       |   |        | (7,786 | )     
|                                                         
|                                                         
|                                                         
|                                                         
|Extraordinary Loss,net of $0 tax expense                  |                                                                               |                                           | (1,050  | )      |        |      |        |         |         |   |       |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|Net Loss                                                  |                                                                               |                                           | (8,904  | )      |        |      | (11,142 | )       |         |   | (7,786 | )     
|                                                         
|                                                         
|                                                         
|                                                         
|Non-cash common stock warrant benefit (charge)            |                                                                               |                                           | 1,059   |        |        |      | (3,861  | )       |         |   |       |       
|                                                         
|                                                         
|                                                         
|                                                         
|Deemed dividend upon issuance of Series P preferred stock |                                                                               |                                           | (8,000  | )      |        |      |        |         |         |   |       |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|Net loss attributable to common stockholders              |                                                                               | $                                         | (15,845 | )      |        | $    | (15,003 | )       |         | $ | (7,786 | )     
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|Net Loss Per Share, Basic and Diluted:                    |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Loss per share before extraordinary items                                     |                                           | $       | (0.45  | )      |      | $       | (3.75   | )       |   | $      | (2.71  | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Loss per share from extraordinary Items                                       |                                           |         | (0.06  | )      |      |         |        |         |   |        |       |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          | Net loss per share                                                            |                                           |         | (0.51  | )      |      |         | (3.75   | )       |   |        | (2.71  | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Income (loss) per share from non-cash common stock
	warrant
	benefit (charge) |                                           |         | 0.06   |        |      |         | (1.30   | )       |   |        |       |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Loss per share from deemed dividend                                           |                                           |         | (0.45  | )      |      |         |        |         |   |        |       |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          | Loss per share attributable to common stockholders                            |                                           | $       | (0.90  | )      |      | $       | (5.04   | )       |   | $      | (2.71  | )     
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       
|                                                          | Weighted average common shares                                                |                                           |         | 17,526 |        |      |         | 2,974   |         |   |        | 2,876  |       
|                                                          |                                                                               |                                           |         |        |        |      |         |         |         |   |        |       

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

F-4



---



##### Table of Contents



GENOMIC SOLUTIONS INC.






CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


|                             |                                                                            |                 |       |              |  |              |   |            |  |        |       |        |  |         |   |            |  |  |   |   |  |  |   |   |  |  |        |       |   |  |     |     |  
|---------------------------- | -------------------------------------------------------------------------- | --------------- | ----- | ------------ |  | ------------ | - | ---------- |  | ------ | ----- | ------ |  | ------- | - | ---------- |  |  | - | - |  |  | - | - |  |  | ------ | ----- | - |  | --- | --- | -
|                             |                                                                            |                 |       |              |  |              |   |            |  |        |       |       
|                             |                                                                            | Convertible     |       | Callable     |  |              |   |            |  |       
|                             |                                                                            | Preferred Stock |       | Common Stock |  | Common Stock |   | Additional |  |       
|                             |                                                                            |                 |       |              |  |              |   | Paid-In    |  | Notes 
|                             |                                                                            | Shares          |       | Amount       |  | Shares       |   | Amount     |  | Shares |       | Amount |  | Capital |   | Receivable
|                             |                                                                            |                 |       |              |  |              |   |            |  |        |       |        |  |         |   |           
|                             |                                                                            |                
|                             |                                                                            | (in thousands) 
|                            
|                            
|                            
|                            
|Balance  December  31, 1997 |                                                                            |                 | 5,430 |              |  |              | 5 |            |  |        | 2,125 |        |  |         | 2 |            |  |  |  |   |  |  |  |   |  |  | 9,226  |       |   |  |    |    
|                            
|                            
|                            
|                            
|                             | Series C preferred stock issued for cash                                   |                 |       | 371          |  |              |   | 1          |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 649   |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Series D preferred stock issued for cash                                   |                 |       | 1,100        |  |              |   | 1          |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 6,582 |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in exchange for software license              |                 |       |             |  |              |   |           |  |        |       | 40     |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 15    |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in exchange for services                      |                 |       |             |  |              |   |           |  |        |       | 1      |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 1     |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued upon exercise of stock options                |                 |       |             |  |              |   |           |  |        |       | 753    |  |         |   | 1          |  |  |   |  |  |  |   |  |  |  |        | 51    |   |  |     | (47 | )
|                            
|                            
|                            
|                            
|                             | Net loss                                                                   |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        |      |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustment                                    |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        |      |   |  |     |    |  
|                             |                                                                            |                 |       |              |  |              |   |            |  |        |       |        |  |         |   |            |  |  |   |   |  |  |   |   |  |  |        |       |   |  |     |    
|                             | Comprehensive loss                                                         |                 |       |              |  |              |   |            |  |        |       |        |  |         |   |            |  |  |   |   |  |  |   |   |  |  |        |       |   |  |     |     |  
|                            
|                            
|                            
|                            
|Balance  December  31, 1998 |                                                                            |                 | 6,901 |              |  |              | 7 |            |  |        | 2,919 |        |  |         | 3 |            |  |  |  |   |  |  |  |   |  |  | 16,524 |       |   |  | (47 | )  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in exchange for services                      |                 |       |             |  |              |   |           |  |        |       | 1      |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 1     |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Interest income on notes receivable                                        |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        |      |   |  |     | (6  | )
|                            
|                            
|                            
|                            
|                             | Callable common stock issued upon exercise of stock options                |                 |       |             |  |              |   |           |  |        |       | 87     |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 9     |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued as payment for interest on
	subordinated debt |                 |       |             |  |              |   |           |  |        |       | 48     |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 238   |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Deferred compensation on stock options granted                             |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | 129   |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Amortization of deferred compensation                                      |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        |      |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Prepaid stock issuance expenses                                            |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        | (69   | ) |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Accretion of redemption price of common stock warrants                     |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        |      |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Net loss                                                                   |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        |      |   |  |     |    |  
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustment                                    |                 |       |             |  |              |   |           |  |        |       |       |  |         |   |           |  |  |   |  |  |  |   |  |  |  |        |      |   |  |     |    |  
|                             |                                                                            |                 |       |              |  |              |   |            |  |        |       |        |  |         |   |            |  |  |   |   |  |  |   |   |  |  |        |       |   |  |     |    
|                             | Comprehensive loss                                                         |                 |       |              |  |              |   |            |  |        |       |        |  |         |   |            |  |  |   |   |  |  |   |   |  |  |        |       |   |  |     |     |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                             |                                                                            |                |   |          |   |               |         |         |   |               |     |     |   |  |       |         |   |  |   |         |  
|---------------------------- | -------------------------------------------------------------------------- | -------------- | - | -------- | - | ------------- | ------- | ------- | - | ------------- | --- | --- | - |  | ----- | ------- | - |  | - | ------- | -
|                             |                                                                            | Deferred       |   |          |   |               |         |         |   |              
|                             |                                                                            | Compensation   |   |          |   | Accumulated   |         |         |   |              
|                             |                                                                            | Related To     |   |          |   | Other         |         |         |   |              
|                             |                                                                            | Stock          |   | Retained |   | Comprehensive |         |         |   | Comprehensive
|                             |                                                                            | Options        |   | Deficit  |   | Income        |         | Total   |   | Loss         
|                             |                                                                            |                |   |          |   |               |         |         |   |              
|                             |                                                                            |               
|                             |                                                                            | (in thousands)
|                            
|                            
|                            
|                            
|Balance  December  31, 1997 |                                                                            |                |  |          |   |               | (3,321  | )       |   |               |    |     |   |  | 5,912 |         |   |  |   |        
|                            
|                            
|                            
|                            
|                             | Series C preferred stock issued for cash                                   |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 650     |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Series D preferred stock issued for cash                                   |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 6,583   |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in exchange for software license              |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 15      |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in exchange for services                      |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 1       |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued upon exercise of stock options                |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 5       |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Net loss                                                                   |                |   |         |   |               |         | (7,786  | ) |               |     |    |   |  |       | (7,786  | ) |  | $ | (7,786  | )
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustment                                    |                |   |         |   |               |         |        |   |               |     | 105 |   |  |       | 105     |   |  |   | 105     |  
|                             |                                                                            |                |   |          |   |               |         |         |   |               |     |     |   |  |       |         |   |  |   |        
|                             | Comprehensive loss                                                         |                |   |          |   |               |         |         |   |               |     |     |   |  |       |         |   |  | $ | (7,681  | )
|                             |                                                                            |                |   |          |   |               |         |         |   |               |     |     |   |  |       |         |   |  |   |        
|Balance  December  31, 1998 |                                                                            |                |  |          |   |               | (11,107 | )       |   |               | 105 |     |   |  | 5,485 |         |   |  |   |        
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in exchange for services                      |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 1       |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Interest income on notes receivable                                        |                |   |         |   |               |         |        |   |               |     |    |   |  |       | (6      | ) |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued upon exercise of stock options                |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 9       |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued as payment for interest on
	subordinated debt |                |   |         |   |               |         |        |   |               |     |    |   |  |       | 238     |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Deferred compensation on stock options granted                             |                |   | (129     | ) |               |         |        |   |               |     |    |   |  |       |        |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Amortization of deferred compensation                                      |                |   | 5        |   |               |         |        |   |               |     |    |   |  |       | 5       |   |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Prepaid stock issuance expenses                                            |                |   |         |   |               |         |        |   |               |     |    |   |  |       | (69     | ) |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Accretion of redemption price of common stock warrants                     |                |   |         |   |               |         | (3,861  | ) |               |     |    |   |  |       | (3,861  | ) |  |   |         |  
|                            
|                            
|                            
|                            
|                             | Net loss                                                                   |                |   |         |   |               |         | (11,142 | ) |               |     |    |   |  |       | (11,142 | ) |  | $ | (11,142 | )
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustment                                    |                |   |         |   |               |         |        |   |               |     | (41 | ) |  |       | (41     | ) |  |   | (41     | )
|                             |                                                                            |                |   |          |   |               |         |         |   |               |     |     |   |  |       |         |   |  |   |        
|                             | Comprehensive loss                                                         |                |   |          |   |               |         |         |   |               |     |     |   |  |       |         |   |  | $ | (11,183 | )
|                             |                                                                            |                |   |          |   |               |         |         |   |               |     |     |   |  |       |         |   |  |   |        

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

F-5



---



##### Table of Contents



GENOMIC SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)(Continued)

|                             |                                                                                       |                 |       |              |   |              |   |            |   |        |        |        |  |         |    |            |  |  |       |       |  |  |   |   |  |  |        |        |  |  |      |     |  
|---------------------------- | ------------------------------------------------------------------------------------- | --------------- | ----- | ------------ | - | ------------ | - | ---------- | - | ------ | ------ | ------ |  | ------- | -- | ---------- |  |  | ----- | ----- |  |  | - | - |  |  | ------ | ------ |  |  | ---- | --- | -
|                             |                                                                                       |                 |       |              |   |              |   |            |   |        |        |       
|                             |                                                                                       | Convertible     |       | Callable     |   |              |   |            |   |       
|                             |                                                                                       | Preferred Stock |       | Common Stock |   | Common Stock |   | Additional |   |       
|                             |                                                                                       |                 |       |              |   |              |   | Paid-In    |   | Notes 
|                             |                                                                                       | Shares          |       | Amount       |   | Shares       |   | Amount     |   | Shares |        | Amount |  | Capital |    | Receivable
|                             |                                                                                       |                 |       |              |   |              |   |            |   |        |        |        |  |         |    |           
|                             |                                                                                       |                
|                             |                                                                                       | (in thousands) 
|                            
|                            
|                            
|                            
|Balance  December  31, 1999 |                                                                                       |                 | 6,901 |              |   |              | 7 |            |   |        | 3,055  |        |  |         | 3  |            |  |  |      |       |  |  |  |   |  |  | 16,832 |        |  |  | (53  | )  
|                            
|                            
|                            
|                            
|                             | Series P preferred stock issued for cash                                              |                 |       | 1,270        |   |              |   | 1          |   |        |        |       |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        | 7,441  |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Deemed dividend related to beneficial conversion feature on
	Series P preferred stock |                 |       |             |   |              |   |           |   |        |        |       |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        | 8,000  |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Interest income on notes receivable                                                   |                 |       |             |   |              |   |           |   |        |        |       |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        |       |  |  |      | (7  | )
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in employee stock purchase plan                          |                 |       |             |   |              |   |           |   |        |        | 5      |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        | 32     |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued upon exercise of stock options                           |                 |       |             |   |              |   |           |   |        |        | 907    |  |         |    | 1          |  |  |       |      |  |  |   |  |  |  |        | 302    |  |  |      | (69 | )
|                            
|                            
|                            
|                            
|                             | Callable common stock issued as payment for interest on
	subordinated debt            |                 |       |             |   |              |   |           |   |        |        | 43     |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        | 208    |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in initial public offering                               |                 |       |             |   |              |   |           |   |        |        | 7,660  |  |         |    | 8          |  |  |       |      |  |  |   |  |  |  |        | 55,125 |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Automatic conversion of preferred stock and warrants into
	callable common stock      |                 |       | (6,901       | ) |              |   | (7         | ) |        |        | 12,088 |  |         |    | 12         |  |  |       |      |  |  |   |  |  |  |        | 6,377  |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Automatic conversion of series P preferred stock into callable
	common stock          |                 |       | (1,270       | ) |              |   | (1         | ) |        |        |       |  |         |    |           |  |  |       | 1,270 |  |  |   | 1 |  |  |        |       |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Amortization of deferred compensation                                                 |                 |       |             |   |              |   |           |   |        |        |       |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        |       |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Decretion of redemption price of common stock warrants                                |                 |       |             |   |              |   |           |   |        |        |       |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        |       |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Net loss                                                                              |                 |       |             |   |              |   |           |   |        |        |       |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        |       |  |  |      |    |  
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustment                                               |                 |       |             |   |              |   |           |   |        |        |       |  |         |    |           |  |  |       |      |  |  |   |  |  |  |        |       |  |  |      |    |  
|                             |                                                                                       |                 |       |              |   |              |   |            |   |        |        |        |  |         |    |            |  |  |       |       |  |  |   |   |  |  |        |        |  |  |      |    
|                             | Comprehensive loss                                                                    |                 |       |              |   |              |   |            |   |        |        |        |  |         |    |            |  |  |       |       |  |  |   |   |  |  |        |        |  |  |      |     |  
|                            
|                            
|                            
|                            
|Balance  December  31, 2000 |                                                                                       |                 |      |              |   |              |  |            |   |        | 23,758 |        |  |         | 24 |            |  |  | 1,270 |       |  |  | 1 |   |  |  | 94,317 |        |  |  | (129 | )  
|                             |                                                                                       |                 |       |              |   |              |   |            |   |        |        |        |  |         |    |            |  |  |       |       |  |  |   |   |  |  |        |        |  |  |      |    

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                             |                                                                                       |                |      |          |  |               |         |        |   |               |      |      |   |  |        |        |   |  |   |        |  
|---------------------------- | ------------------------------------------------------------------------------------- | -------------- | ---- | -------- |  | ------------- | ------- | ------ | - | ------------- | ---- | ---- | - |  | ------ | ------ | - |  | - | ------ | -
|                             |                                                                                       | Deferred       |      |          |  |               |         |        |   |              
|                             |                                                                                       | Compensation   |      |          |  | Accumulated   |         |        |   |              
|                             |                                                                                       | Related To     |      |          |  | Other         |         |        |   |              
|                             |                                                                                       | Stock          |      | Retained |  | Comprehensive |         |        |   | Comprehensive
|                             |                                                                                       | Options        |      | Deficit  |  | Income        |         | Total  |   | Loss         
|                             |                                                                                       |                |      |          |  |               |         |        |   |              
|                             |                                                                                       |               
|                             |                                                                                       | (in thousands)
|                            
|                            
|                            
|                            
|Balance  December  31, 1999 |                                                                                       |                | (124 | )        |  |               | (26,110 | )      |   |               | 64   |      |   |  | (9,381 | )      |   |  |   |       
|                            
|                            
|                            
|                            
|                             | Series P preferred stock issued for cash                                              |                |      |         |  |               |         |       |   |               |      |     |   |  |        | 7,442  |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Deemed dividend related to beneficial conversion feature on
	Series P preferred stock |                |      |         |  |               |         | (8,000 | ) |               |      |     |   |  |        |       |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Interest income on notes receivable                                                   |                |      |         |  |               |         |       |   |               |      |     |   |  |        | (7     | ) |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in employee stock purchase plan                          |                |      |         |  |               |         |       |   |               |      |     |   |  |        | 32     |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued upon exercise of stock options                           |                |      |         |  |               |         |       |   |               |      |     |   |  |        | 234    |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued as payment for interest on
	subordinated debt            |                |      |         |  |               |         |       |   |               |      |     |   |  |        | 208    |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Callable common stock issued in initial public offering                               |                |      |         |  |               |         |       |   |               |      |     |   |  |        | 55,133 |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Automatic conversion of preferred stock and warrants into
	callable common stock      |                |      |         |  |               |         |       |   |               |      |     |   |  |        | 6,382  |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Automatic conversion of series P preferred stock into callable
	common stock          |                |      |         |  |               |         |       |   |               |      |     |   |  |        |       |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Amortization of deferred compensation                                                 |                |      | 26       |  |               |         |       |   |               |      |     |   |  |        | 26     |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Decretion of redemption price of common stock warrants                                |                |      |         |  |               |         | 1,059  |   |               |      |     |   |  |        | 1,059  |   |  |   |        |  
|                            
|                            
|                            
|                            
|                             | Net loss                                                                              |                |      |         |  |               |         | (8,904 | ) |               |      |     |   |  |        | (8,904 | ) |  | $ | (8,904 | )
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustment                                               |                |      |         |  |               |         |       |   |               |      | (235 | ) |  |        | (235   | ) |  |   | (235   | )
|                             |                                                                                       |                |      |          |  |               |         |        |   |               |      |      |   |  |        |        |   |  |   |       
|                             | Comprehensive loss                                                                    |                |      |          |  |               |         |        |   |               |      |      |   |  |        |        |   |  | $ | (9,139 | )
|                             |                                                                                       |                |      |          |  |               |         |        |   |               |      |      |   |  |        |        |   |  |   |       
|Balance  December  31, 2000 |                                                                                       |                | (98  | )        |  |               | (41,955 | )      |   |               | (171 | )    |   |  | 51,989 |        |   |  |   |       
|                             |                                                                                       |                |      |          |  |               |         |        |   |               |      |      |   |  |        |        |   |  |   |       

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

F-6



---



##### Table of Contents



GENOMIC SOLUTIONS INC.







CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |        |        |        |        |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------- | ----------------------------------------- | ------ | ------ | ------- | ------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                               |                                                                                                       |                                                                       
|                                               |                                                                                                       | Years ended December 31,                                              
|                                               |                                                                                                       |                                                                       
|                                               |                                                                                                       | 2000                                                                   |                            | 1999                                      |        | 1998  
|                                               |                                                                                                       |                                                                        |                            |                                           |        |       
|                                               |                                                                                                       |                                                                       
|                                               |                                                                                                       | (in thousands)                                                        
|                                              
|                                              
|                                              
|                                              
|Cash Flows from Operating Activities:          |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Net loss                                                                                              |                                                                        | $                          | (8,904                                    | )      |        | $       | (11,142 | )      |        | $      | (7,786 | )     
|                                               | Adjustments to reconcile net loss to net cash used in operating
	activities                          |                                                                        |                            |                                           |        |        |         |         |        |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Depreciation and amortization                                          |                            |                                           | 1,325  |        |         |         | 1,234  |        |        |        | 748    |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Amortization of discount on subordinated debt                          |                            |                                           | 965    |        |         |         | 1,606  |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Restructuring and other unusual charges                                |                            |                                           | 600    |        |         |         | 438    |        |        |        | 340    |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Callable common stock issued in lieu of interest                       |                            |                                           | 208    |        |         |         | 238    |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Amortization of deferred compensation                                  |                            |                                           | 26     |        |         |         | 5      |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Extraordinary loss                                                     |                            |                                           | 1,050  |        |         |         |       |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Gain on sale of investment                                             |                            |                                           | (282   | )      |         |         |       |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Gain on sale of assets                                                 |                            |                                           | (382   | )      |         |         |       |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Other                                                                  |                            |                                           | 51     |        |         |         | (2     | )      |        |        | 1      |       
|                                               | Increase (decrease) in cash resulting from changes in
	assets and liabilities,
	net of acquisitions  |                                                                        |                            |                                           |        |        |         |         |        |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       |                                                                        | Accounts receivable        |                                           |        | (4,157 | )       |         |        | (2,376 | )      |        |        | (37    | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       |                                                                        | Inventories                |                                           |        | (2,409 | )       |         |        | (787   | )      |        |        | (1,416 | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       |                                                                        | Prepaid expenses and other |                                           |        | (817   | )       |         |        | 371    |        |        |        | (534   | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       |                                                                        | Accounts payable           |                                           |        | 1,565  |         |         |        | 309    |        |        |        | 1,470  |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       |                                                                        | Accrued liabilities        |                                           |        | (81    | )       |         |        | 524    |        |        |        | 25     |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       |                                                                        | Deferred revenue           |                                           |        | 106    |         |         |        | 58     |        |        |        | (85    | )     
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                               |                                                                                                       |                                                                        |                            | Net cash used in operating activities     |        |        | (11,136 | )       |        |        | (9,524 | )      |        |        | (7,274 | )
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|Cash Flows from Investing Activities:          |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Purchase of property and equipment                                     |                            |                                           | (1,669 | )      |         |         | (1,449 | )      |        |        | (1,331 | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Increase in other assets                                               |                            |                                           | (103   | )      |         |         | (340   | )      |        |        | (43    | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Acquisitions of assets and stock of various companies                  |                            |                                           |       |        |         |         |       |        |        |        | (2,607 | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Other investing activities                                             |                            |                                           |       |        |         |         |       |        |        |        | (73    | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Proceeds from sale of investment                                       |                            |                                           | 575    |        |         |         |       |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Proceeds from sale of property and equipment                           |                            |                                           | 168    |        |         |         |       |        |        |        |       |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                               |                                                                                                       |                                                                        |                            | Net cash used in investing activities     |        |        | (1,029  | )       |        |        | (1,789 | )      |        |        | (4,054 | )
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|Cash Flows from Financing Activities:          |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Proceeds from issuance of subordinated debt and common stock
	warrants |                            |                                           |       |        |         |         | 9,500  |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Repayment of subordinated debt                                         |                            |                                           | (9,500 | )      |         |         |       |        |        |        |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Borrowings under sale-leaseback transactions                           |                            |                                           | 113    |        |         |         | 1,140  |        |        |        | 524    |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Proceeds from issuance of callable common stock                        |                            |                                           | 55,399 |        |         |         | 8      |        |        |        | 5      |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Net borrowings (repayments) under lines of credit                      |                            |                                           | (1,768 | )      |         |         | (170   | )      |        |        | 1,482  |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Repayment of long-term debt                                            |                            |                                           | (758   | )      |         |         | (538   | )      |        |        | (144   | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Proceeds from issuance of preferred stock                              |                            |                                           | 7,442  |        |         |         |       |        |        |        | 7,233  |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Other financing activities                                             |                            |                                           | (7     | )      |         |         | (75    | )      |        |        |       |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                               |                                                                                                       |                                                                        |                            | Net cash provided by financing activities |        |        | 50,921  |         |        |        | 9,865  |        |        |        | 9,100  |  
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|Effect of Exchange Rate Changes on Cash        |                                                                                                       |                                                                        | 75                         |                                           |        |        | (104    | )       |        |        | 19     |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|Net Increase (Decrease) in Cash                |                                                                                                       |                                                                        | 38,831                     |                                           |        |        | (1,552  | )       |        |        | (2,209 | )     
|                                              
|                                              
|                                              
|                                              
|Cash  Beginning of Year                       |                                                                                                       |                                                                        | 1,328                      |                                           |        |        | 2,880   |         |        |        | 5,089  |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|Cash  End of Year                             |                                                                                                       | $                                                                      | 40,159                     |                                           |        | $      | 1,328   |         |        | $      | 2,880  |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|Supplemental Disclosure of Cash Flow Activity: |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Cash paid for interest                                                 |                            | $                                         | 1,419  |        |         | $       | 631    |        |        | $      | 111    |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Cash paid for income taxes                                             |                            | $                                         |       |        |         | $       |       |        |        | $      |       |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|Supplemental Disclosure of Non-Cash Activity:  |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                       | Equipment purchased under capital lease obligations (see Note 16)      |                            | $                                         | 959    |        |         | $       | 1,561  |        |        | $      | 642    |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       
|                                               |                                                                                                       | Capitalized license fees not yet paid                                  |                            | $                                         | 4,525  |        |         | $       |       |        |        | $      |       |       
|                                               |                                                                                                       |                                                                        |                            |                                           |        |        |         |         |        |        |        |       

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

F-7



---



##### Table of Contents



1.  DESCRIPTION OF BUSINESS

Genomic Solutions Inc. (Genomic Solutions) and its
subsidiaries (collectively referred to as the
Company) design, develop, manufacture, market and
sell integrated, high throughput genomic and proteomic
instrumentation, software, consumables and services, which can
be sold as integrated systems or as separate components. The
Companys DNA microarray and proteomic products and systems
are used by its customers to produce DNA microarrays, maintain
DNA libraries, quantify gene expression levels, and isolate,
identify and characterize proteins. The Companys customers
are typically pharmaceutical and biotechnology companies,
universities, and government funded research institutions. In
addition to selling products to customers, the Company also uses
its instrument, software, consumables, and applications
expertise to provide contract DNA microarray and proteomic
experimental services to researchers on a fee-for-service basis.

As of December 31, 2000, the Company has operations in the
United States, Japan and the United Kingdom. Genomic Solutions
KK, a wholly-owned subsidiary of Genomic Solutions located in
Tokyo, Japan, provides sales and technical support functions for
the Japanese market. Genomic Solutions Ltd., a wholly-owned
subsidiary of Genomic Solutions located in Huntingdon, England
provides robot and fluid handling systems development and
manufacturing as well as marketing, sales and support for the
United Kingdom market.

As a result of the Companys efforts in recent years to
build its infrastructure and internal staffing, develop its
systems and expand into new markets, the Company has experienced
significant operating losses. The Company expects to continue to
focus on increasing its customer base, expending substantial
resources on sales and marketing and administration, and
developing new product and service offerings. Accordingly, these
expenditures are expected to continue to increase, all of which
will have a negative impact on short-term operating results.

On May 10, 2000, the Company completed its initial public
offering, raising net proceeds, after deducting underwriting
discounts and commissions and other offering expenses, of
approximately $55.1 million including the
underwriters over-allotment option. All of the
Companys preferred stock was automatically converted to
callable common stock or common stock (see Note 11) and all
of the warrants issued in connection with the subordinated note
agreements in April and October 1999 were either exercised or
cancelled upon the completion of the initial public offering
(see Note 9). There can be no assurance that growth in the
Companys revenues or customer base will continue, or that
the Company will be able to achieve or sustain profitability or
positive cash flow. The failure of the Company to achieve or
sustain profitability or positive cash flow may result in the
Company reducing the scope of its operations or anticipated
expansion, which could adversely affect the Companys
business and results of operations.

2.  SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of
Genomic Solutions and its subsidiaries, Genomic Solutions KK and
Genomic Solutions Ltd. All significant intercompany balances and
transactions have been eliminated in consolidation.

Revenue

Product revenue is derived from the sales of genomic and
proteomic instrumentation, consumables and services. Revenue
from instrumentation and consumable product sales, including
revenues generated through distributors, is recognized when a
customer contract is fully executed and the product is shipped.
Title to the instruments pass to the customer and acceptance
occurs upon shipment. There are no significant installation
efforts required. Service revenue includes revenue from contract
research services and service maintenance agreements. Revenue
from contract research services is recognized as the services
are performed on a time and materials basis. Revenue from
service maintenance agreements is recognized on a straight-line
basis over the period in which the services are provided.

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Research and Development Expenses

Research and development expenses include all employee payroll
and related costs attributable to research and development
activities.

Foreign Currency Translation

The financial statements of Genomic Solutions foreign
subsidiaries are translated using exchange rates in effect at
period end for assets and liabilities and at average rates
during the period for results of operations. The resulting
foreign currency translation adjustments are reflected as a
separate component of stockholders equity. Foreign
currency transaction gain (loss) resulting from product and
service sales in foreign denominated currencies totaled
approximately $(82,000), $113,000 and $(11,000) in 2000, 1999
and 1998, respectively, and are included in other expense in the
accompanying consolidated statements of operations.

Management Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a
maturity of ninety days or less to be cash equivalents.

Accounts Receivable

At December 31, 2000 and 1999, accounts receivable are
stated net of an allowance for uncollectible accounts of
approximately $226,000 and $135,000, respectively.

Inventories

Inventories consist primarily of purchased parts and components
and are stated at the lower of cost, as determined on a
first-in, first-out basis, or market.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is
provided on a straight-line basis over the estimated useful
lives of the related assets, which generally range from three to
five years.

Goodwill

Goodwill is being amortized on a straight-line basis over
periods ranging from five to ten years. At
December 31, 2000 and 1999, accumulated amortization
totaled $809,000 and $1.1 million, respectively.
Amortization expense totaled approximately $298,000, $385,000
and $453,000 in 2000, 1999 and 1998, respectively, exclusive of
the write-downs discussed below.

At each balance sheet date, the Company evaluates the carrying
value of goodwill and other long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. If evidence of a possible
impairment exists as a result of this evaluation, the Company
estimates the undiscounted future cash flows from the use of the
asset and its eventual disposition and then compares this amount
to the carrying value of the asset. In September 1999, the
Company determined that the goodwill that originated from the
acquisition of certain assets from Insight BioMedical Imaging,
Inc. (see Note 17) was impaired due to the Companys
strategic decision to no longer market, sell and provide
technical support for the products acquired from Insight
BioMedical Imaging. As a result, the Company estimated the

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License Fees

From time to time, the Company enters into license agreements
with third parties whereby the Company obtains the right to use
certain technologies for certain periods of time. Under
agreements entered into during 2000, the Company is required to
pay initial, non-refundable fees of $4,525,000 and then pay
royalties on certain product sales during the term of the
agreements (see Note 16). The agreements have an initial
term of five years and the Company has the option and intention
to extend one of the agreements for an additional five years.
The initial, non-refundable fees have been capitalized and are
being amortized over the effective terms of the agreements of
five and ten years. At December 31, 2000, no amortized
expense has been recognized. The initial, non-refundable fees
are accrued in the accompanying consolidated balance sheets
within current and long-term liabilities and will be fully paid
by January 2002.

Capitalized Software Development Costs

The Company incurs software development costs for software to be
imbedded in the Companys instrumentation products. The
Company accounts for these software development costs in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 86. Under SFAS No. 86,
capitalization of software development costs begins upon the
establishment of technological feasibility of the software
component (defined as a working program model) and completing
research and development activities for the instrumentation
component of the product. In 2000, 1999 and 1998, amounts that
would have been capitalized under this statement were
immaterial, and therefore no software development costs have
been capitalized. The Company does not expect to capitalize any
software development costs in future periods.

Accrued Warranty

The Company provides a one-year warranty on the majority of its
instrumentation sales. The warranty primarily consists of two
preventative maintenance visits by the Company. The Company has
recorded a liability for estimated warranty costs to be incurred
on sales made prior to the end of each period, which is included
in accrued liabilities in the accompanying consolidated balance
sheets.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees
using the intrinsic value method prescribed under Accounting
Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair value of the Companys
callable common stock at the date of the option grant over the
amount the employee must pay to acquire the stock. In 1999, the
Company recognized deferred compensation related to stock option
grants (see Note 13). As supplemental information, the
Company has provided pro forma disclosure of stock option
activity in Note 13, in accordance with the requirements of
SFAS No. 123, Accounting for Stock-Based
Compensation.

The Company accounts for stock-based compensation to
non-employees under SFAS No. 123 and Emerging Issues Task
Force (EITF) No. 96-18. Stock-based
compensation related to options issued to non-employees is not
material for any period presented.

Net Loss Per Share

Basic and diluted net loss per share is computed in accordance
with SFAS No. 128, Earnings Per Share, by
dividing the net loss allocable to common shareholders by the
weighted average number of shares of common stock outstanding.
For the years 2000, 1999 and 1998, the effect of convertible
preferred stock, stock options and warrants outstanding for the
purchase of shares of common stock have not been used in the

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The calculation of basic and diluted net loss per share is as
follows (in thousands, except per share data):

|                                                                |  |                          |         |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                |  |                         
|                                                                |  | Years ended December 31,
|                                                                |  |                         
|                                                                |  | 2000                     |         | 1999 |  | 1998
|                                                                |  |                          |         |      |  |     
|Net loss attributable to common stockholders                    |  | $                        | (15,845 | )    |  | $    | (15,003 | ) |  | $ | (7,786 | )
|                                                                |  |                          |         |      |  |      |         |   |  |   |        |  
|Basic and diluted  weighted average common shares
	outstanding |  |                          | 17,526  |      |  |      | 2,974   |   |  |   | 2,876  |  
|                                                                |  |                          |         |      |  |      |         |   |  |   |        |  
|Net loss per share attributable to common stockholders          |  | $                        | (0.90   | )    |  | $    | (5.04   | ) |  | $ | (2.71  | )
|                                                                |  |                          |         |      |  |      |         |   |  |   |        |  

Fair Value of Financial Instruments

The carrying values of the Companys accounts receivable
and accounts payable approximate fair value due to the short
maturities of these instruments. Managements estimate of
the fair value of notes payable, subordinated debt and the note
receivable is determined by reference to various market data for
comparable financial instruments, requires considerable judgment
by management, and are not necessarily indicative of the amounts
that could be realized in a current market exchange. The fair
value of these financial instruments approximate their recorded
values for all periods presented. It is not practicable to
estimate the fair value of the Companys capital lease
obligations.

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 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
consolidated balance sheets.

New Accounting Pronouncements Not Yet Adopted

Various accounting pronouncements have been issued but which are
not effective including, but not limited to, Statement of
Financial Accounting Standards Nos. 133 and 138,
Accounting for Derivative Instruments and Hedging
Activities, which is effective for fiscal years beginning
after June 15, 2000. Management expects that adoption of
these pronouncements will have little, if any, impact on its
consolidated financial position or results of operations.

3.  INVENTORIES

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

|                |  |                 |       |      |  |   |       | 
|--------------- |  | --------------- | ----- | ---- |  | - | ----- | 
|                |  |                
|                |  | At December 31,
|                |  |                
|                |  | 2000            |       | 1999
|                |  |                 |       |     
|Raw materials   |  | $               | 2,673 |      |  | $ | 1,196 | 
|               
|               
|               
|               
|Work-in-process |  |                 | 764   |      |  |   | 906   | 
|               
|               
|               
|               
|Finished goods  |  |                 | 2,297 |      |  |   | 1,543 | 
|                |  |                 |       |      |  |   |       | 
|                |  | $               | 5,734 |      |  | $ | 3,645 | 
|                |  |                 |       |      |  |   |       | 

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4.  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

|                                |  |                 |       |      |  |   |       | 
|------------------------------- |  | --------------- | ----- | ---- |  | - | ----- | 
|                                |  |                
|                                |  | At December 31,
|                                |  |                
|                                |  | 2000            |       | 1999
|                                |  |                 |       |     
|Furniture and office equipment  |  | $               | 5,761 |      |  | $ | 3,578 | 
|                               
|                               
|                               
|                               
|Computer equipment              |  |                 | 1,150 |      |  |   | 998   | 
|                                |  |                 |       |      |  |   |       | 
|                                |  |                 | 6,911 |      |  |   | 4,576 | 
|                               
|                               
|                               
|                               
|Less  Accumulated depreciation |  |                 | 2,176 |      |  |   | 1,471 | 
|                                |  |                 |       |      |  |   |       | 
|                                |  | $               | 4,735 |      |  | $ | 3,105 | 
|                                |  |                 |       |      |  |   |       | 

Property and equipment held under capital lease obligations
totaled approximately $2.8 million and $2.2 million at
December 31, 2000 and 1999, respectively. The related
accumulated depreciation totaled approximately $1.0 million
and $479,000 at December 31, 2000 and 1999, respectively.

5.  INVESTMENTS

In January 2000, Genomic Solutions Ltd. sold its investment
in HD Technologies for approximately $575,000 in cash, which
resulted in a gain of approximately $282,000. In
September 2000, the Company sold all of its product and
intellectual property rights to the mass spectrometer developed
by the Company in collaboration with HD Technologies for
approximately $648,000, consisting of $150,000 in cash and
equipment valued at approximately $498,000, which resulted in a
gain of approximately $382,000.

In 1998, Genomic Solutions Ltd. purchased a 30% interest in HD
Technologies Limited, a UK company, for approximately $150,000.
We accounted for this investment under the equity method of
accounting. The carrying amount of this investment was
approximately $173,000 at December 31, 1999, and is
included in other assets in the accompanying consolidated
balance sheets. Equity income from this investment was $16,000
in 1999, and is included in other income in the accompanying
consolidated statements of operations.

6.  ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

|                                             |  |                 |       |      |  |   |       | 
|-------------------------------------------- |  | --------------- | ----- | ---- |  | - | ----- | 
|                                             |  |                
|                                             |  | At December 31,
|                                             |  |                
|                                             |  | 2000            |       | 1999
|                                             |  |                 |       |     
|License fees                                 |  | $               | 3,400 |      |  | $ |      | 
|                                            
|                                            
|                                            
|                                            
|Compensation and related taxes               |  |                 | 811   |      |  |   | 482   | 
|                                            
|                                            
|                                            
|                                            
|Deferred gain on sale-leaseback transactions |  |                 | 398   |      |  |   | 404   | 
|                                            
|                                            
|                                            
|                                            
|Other                                        |  |                 | 1,458 |      |  |   | 1,201 | 
|                                             |  |                 |       |      |  |   |       | 
|                                             |  | $               | 6,067 |      |  | $ | 2,087 | 
|                                             |  |                 |       |      |  |   |       | 

7.  LINES OF CREDIT

At December 31, 2000, the Company has a $32.0 million
line-of-credit agreement (the Primary Line of
Credit) with a bank, which provides for borrowings through
July 2001. At December 31, 2000 and 1999, outstanding
borrowings under this agreement totaled $0 and
$1.8 million, respectively. Outstanding borrowings bear
interest at the banks prime interest rate
(weighted-average rate of 9.5% and 8.125% in 2000 and 1999,
respectively) and are payable on demand. The agreement contains
various covenants which, among other requirements, establish
minimum levels of working capital and tangible net worth that
must be maintained by the Company.

The Company has line-of-credit agreements with a leasing company
under which the Company may draw up to $3.0 million. At
December 31, 2000 and 1999, aggregate draws under these
agreements totaled approximately $3.0 million and
$2.0 million, respectively. Outstanding borrowings
(reflected as capital lease

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At December 31, 2000 and 1999, Genomic Solutions Ltd. had
line-of-credit agreements with a bank whereby Genomic Solutions
Ltd. may borrow up to approximately $112,000 and $324,000,
respectively. Outstanding borrowings bear interest at 10% and
are collateralized by a letter of credit issued by the Company
and eligible accounts receivable, as defined. At
December 31, 2000 and 1999, no amounts were outstanding
under these agreements. The current agreement expires
June 2001.

8.  LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

|                                                                                                                                                                                          |  |                 |       |      |  |   |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----- | ---- |  | - | ----- | 
|                                                                                                                                                                                          |  |                
|                                                                                                                                                                                          |  | At December 31,
|                                                                                                                                                                                          |  |                
|                                                                                                                                                                                          |  | 2000            |       | 1999
|                                                                                                                                                                                          |  |                 |       |     
|Subordinated notes payable, net of unamortized discount of
	$1,974 at December 31, 1999 (see Note 9)                                                                                      |  | $               |      |      |  | $ | 7,526 | 
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|Capital lease obligations, due in varying amounts with interest
	rates ranging from 6.2% to 16.1%, through August 2004 (see
	Note 16)                                                     |  |                 | 1,952 |      |  |   | 1,732 | 
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|Notes payable by Genomic Solutions Ltd., payable in monthly
	installments of approximately $6,900 and $4,600, plus interest
	at 10%, through November 2000 and January 2001, respectively |  |                 | 4     |      |  |   | 132   | 
|                                                                                                                                                                                          |  |                 |       |      |  |   |       | 
|                                                                                                                                                                                          |  |                 | 1,956 |      |  |   | 9,390 | 
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|                                                                                                                                                                                         
|Less  Current portion                                                                                                                                                                    |  |                 | 754   |      |  |   | 712   | 
|                                                                                                                                                                                          |  |                 |       |      |  |   |       | 
|                                                                                                                                                                                          |  | $               | 1,202 |      |  | $ | 8,678 | 
|                                                                                                                                                                                          |  |                 |       |      |  |   |       | 

See Note 16 for future scheduled maturities of capital
lease obligations.

9.  SUBORDINATED DEBT AND COMMON STOCK WARRANTS

In April 1999 and October 1999, the Company received
$6.0 million and $3.5 million, respectively, from the
issuance of subordinated notes with detachable warrants to
purchase 1,400,000 and 1,225,000 shares of callable common stock
at $0.01 per share, respectively (Sub Note 1
and Sub Note 2, respectively). Accordingly, the
proceeds were allocated to the debt and warrants based on their
relative fair values. The fair value of the warrants was
estimated using the Black-Scholes valuation model using the
following assumptions for Sub Note 1 and Sub Note 2,
respectively: estimated volatility of 0.53 and 0.58, risk-free
interest rate of 5.04% and 5.87%, no dividend yield and an
expected life of the warrants of five years. The resulting
initial aggregate fair value of the warrants of
$3.6 million is classified as common stock warrants in the
accompanying December 31, 1999 consolidated balance sheets.

The remainder of the proceeds of $5.9 million was recorded
as the initial carrying value of the subordinated notes. Prior
to an amendment to the subordinated notes (see below), the
resulting discount on the subordinated notes was being amortized
using the effective interest method through April 2000 for Sub
Note 1 and Sub Note 2. The amortization period of the
discount was shorter than the contractual life of the
subordinated notes as the notes automatically matured upon the
closing of an initial public offering (originally expected to be
April 2000) and were expected to be repaid with a portion of the
offering proceeds. However, on March 24, 2000 and
April 28, 2000, the Company and the subordinated debt
holders amended the note agreements to change the acceleration
of the maturity date from the closing date of an initial public
offering to one year from the closing date of an initial public
offering (see below). Aggregate amortization expense related to
the discount was $1.3 million and $1.6 million in 2000
and 1999 respectively, and is included in interest expense in
the accompanying consolidated statements of operations. Both
subordinated notes bore interest at a stated rate of 12%. The
effective interest rate was 53.0% and 154.1% for Sub Note 1
and Sub Note 2, respectively, calculated based on an
expected maturity date of April 2000.

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##### Table of Contents



The Company accounted for the amendment to the subordinated
notes as an extinguishment of debt and recorded an extraordinary
loss of approximately $1.1 million for 2000. The
extraordinary loss represents the difference between the
carrying value of the original subordinated notes less the
related unamortized debt issuance costs at March 24, 2000,
aggregating to approximately $8.7 million, and the
estimated fair value of the new subordinated notes of
approximately $9.8 million. Managements estimate of
the fair value of the new subordinated notes was based on an
effective interest rate of 8.75%. Management determined this
rate by reference to market data for comparable financial
instruments available to the Company at March 24, 2000. The
resulting premium on the amended subordinated notes was being
amortized using the effective interest method through April
2001. The amortization period of the premium was shorter than
the contractual life of the amended subordinated notes as the
notes automatically matured one year from the closing date of an
initial public offering. Since the subordinated notes were fully
repaid in 2000, the premium of $313,000 has been fully amortized
and is netted against interest expense in the accompanying
consolidated statements of operations. Interest was payable
quarterly and was payable 7/12ths in cash and 5/12ths in shares
of callable common stock based on a conversion factor of $5.00
per share for Sub Note 1 and $4.50 per share for Sub
Note 2.

The common stock warrants were exercisable at any time, expired
ten years from the date of grant and were to be
automatically exercised upon the completion of a qualifying
liquidity event. However, 1,512,000 warrants were subject to
cancellation upon the completion of a qualifying liquidity event
prior to April 24, 2000, 1,071,500 warrants were subject to
cancellation upon the completion of a qualifying liquidity event
prior to April 24, 2001, 636,000 warrants were subject to
cancellation upon the completion of a qualifying liquidity event
prior to April 24, 2002, and 285,500 warrants were subject
to cancellation upon the completion of a qualifying liquidity
event prior to April 24, 2003. A qualifying liquidity event
is defined as an initial public offering, as defined, or a
merger or sale of the Company in which the stockholders receive
cash or freely marketable securities. The warrants were
redeemable by the holders after April 23, 2004 at either
fair market value, as determined between the holder and the
Company or by appraisal, or seven times EBITDA, as defined. The
difference between the estimated redemption price and the
initial carrying value of the warrants was being accreted to
retained deficit on a straight-line basis through
April 2004. In 1999, the Company recorded accretion of
$3.9 million, based on the anticipated offering price at
December 31, 1999 of its common stock in connection with
its initial public offering. In 2000, the Company recorded
decretion of approximately $1.1 million as a result of the
decline in the actual offering price at May 5, 2000 of the
Companys common stock in its initial public offering.

On June 9, 2000, the Company repaid in their entirety the
$6.0 million of subordinated notes issued in April 1999 and
the $3.5 million of subordinated notes issued in October
1999.

10.  INCOME TAXES

The components of the provision (benefit) for income taxes
are as follows (in thousands):

|                       |                                 |                          |   |        |   |      |   |        |   |   |   |        |  
|---------------------- | ------------------------------- | ------------------------ | - | ------ | - | ---- | - | ------ | - | - | - | ------ | -
|                       |                                 |                         
|                       |                                 | Years ended December 31,
|                       |                                 |                         
|                       |                                 | 2000                     |   | 1999   |   | 1998
|                       |                                 |                          |   |        |   |     
|Continuing operations: |                                 |                          |   |        |   |      |   |        |   |   |   |       
|                      
|                      
|                      
|                      
|                       | Currently payable               |                          | $ |       |   |      | $ |       |   |   | $ |       |  
|                      
|                      
|                      
|                      
|                       | Deferred tax benefit            |                          |   | (2,447 | ) |      |   | (3,682 | ) |   |   | (2,432 | )
|                      
|                      
|                      
|                      
|                       | Increase in valuation allowance |                          |   | 2,447  |   |      |   | 3,682  |   |   |   | 2,432  |  
|                       |                                 |                          |   |        |   |      |   |        |   |   |   |       
|                       |                                 | $                        |  |        |   | $    |  |        |   | $ |  |       
|                       |                                 |                          |   |        |   |      |   |        |   |   |   |       
|Extraordinary item:    |                                 |                          |   |        |   |      |   |        |   |   |   |       
|                      
|                      
|                      
|                      
|                       | Currently payable               |                          | $ |       |   |      | $ |       |   |   | $ |       |  
|                      
|                      
|                      
|                      
|                       | Deferred tax benefit            |                          |   | (357   | ) |      |   |       |   |   |   |       |  
|                      
|                      
|                      
|                      
|                       | Increase in valuation allowance |                          |   | 357    |   |      |   |       |   |   |   |       |  
|                       |                                 |                          |   |        |   |      |   |        |   |   |   |       
|                       |                                 | $                        |  |        |   | $    |  |        |   | $ |  |       
|                       |                                 |                          |   |        |   |      |   |        |   |   |   |       

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The differences between the income tax provision calculated at
the United States Federal statutory rate and the consolidated
income tax provision (benefit) from operations are
summarized as follows (in thousands):

|                                                          |  |                          |        |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                          |  |                         
|                                                          |  | Years ended December 31,
|                                                          |  |                         
|                                                          |  | 2000                     |        | 1999 |  | 1998
|                                                          |  |                          |        |      |  |     
|Federal statutory provision (benefit)                     |  | $                        | (2,670 | )    |  | $    | (3,788 | ) |  | $ | (2,647 | )
|                                                         
|                                                         
|                                                         
|                                                         
|Other nondeductible items                                 |  |                          | 90     |      |  |      | 79     |   |  |   | 77     |  
|                                                         
|                                                         
|                                                         
|                                                         
|Increase in valuation allowance                           |  |                          | 2,447  |      |  |      | 3,682  |   |  |   | 2,432  |  
|                                                         
|                                                         
|                                                         
|                                                         
|Write-off of acquired in-process research and development |  |                          |       |      |  |      |       |   |  |   | 115    |  
|                                                         
|                                                         
|                                                         
|                                                         
|Other                                                     |  |                          | 133    |      |  |      | 27     |   |  |   | 23     |  
|                                                          |  |                          |        |      |  |      |        |   |  |   |        |  
|                                                          |  | $                        |       |      |  | $    |       |   |  | $ |       |  
|                                                          |  |                          |        |      |  |      |        |   |  |   |        |  

The components of deferred income taxes consisted of the
following (in thousands):

|                                 |  |                 |        |      |  |   |        |  
|-------------------------------- |  | --------------- | ------ | ---- |  | - | ------ | -
|                                 |  |                
|                                 |  | At December 31,
|                                 |  |                
|                                 |  | 2000            |        | 1999
|                                 |  |                 |        |     
|Net operating loss carryforwards |  | $               | 9,314  |      |  | $ | 6,097  |  
|                                
|                                
|                                
|                                
|Subordinated debt                |  |                 |       |      |  |   | 467    |  
|                                
|                                
|                                
|                                
|Goodwill                         |  |                 | 430    |      |  |   | 455    |  
|                                
|                                
|                                
|                                
|Accruals and reserves            |  |                 | 148    |      |  |   | 78     |  
|                                
|                                
|                                
|                                
|Other                            |  |                 | (39    | )    |  |   | (48    | )
|                                 |  |                 |        |      |  |   |        |  
|                                 |  |                 | 9,853  |      |  |   | 7,049  |  
|                                
|                                
|                                
|                                
|Less  Valuation allowance       |  |                 | (9,853 | )    |  |   | (7,049 | )
|                                 |  |                 |        |      |  |   |        |  
|                                 |  | $               |       |      |  | $ |       |  
|                                 |  |                 |        |      |  |   |        |  

At December 31, 2000 and 1999 the Company has available
pre-tax net operating loss carryforwards of approximately $27.4
and $17.9 million, respectively, which can be utilized to
offset future taxable income. These net operating loss
carryforwards expire between 2010 and 2020. Annual utilization
of the net operating loss carryforwards are limited under
Section 382 of the Internal Revenue Code due to ownership
changes, as defined by Section 382, that occurred in 2000
and 1997. These and other deferred income tax assets are fully
reserved by a valuation allowance due to historical operating
losses.

11.  PREFERRED STOCK

Preferred stock consists of the following:

|                |  |                 |            |                 |  |            |   |             |  |  |            |  |  |  |           | 
|--------------- |  | --------------- | ---------- | --------------- |  | ---------- | - | ----------- |  |  | ---------- |  |  |  | --------- | 
|                |  |                 |            |                
|                |  | At December 31, |            | At December 31,
|                |  | 2000            |            | 1999           
|                |  |                 |            |                
|                |  |                 |            | Issued and      |  |            |   | Issued and 
|                |  | Authorized      |            | Outstanding     |  | Authorized |   | Outstanding
|                |  |                 |            |                 |  |            |   |            
|Series B        |  |                 |           |                 |  |            |  |             |  |  | 2,000,000  |  |  |  | 1,680,880 | 
|               
|               
|               
|               
|Series C        |  |                 |           |                 |  |            |  |             |  |  | 4,070,339  |  |  |  | 4,070,339 | 
|               
|               
|               
|               
|Series D        |  |                 |           |                 |  |            |  |             |  |  | 1,100,000  |  |  |  | 1,100,000 | 
|               
|               
|               
|               
|Series M        |  |                 |           |                 |  |            |  |             |  |  | 50,000     |  |  |  | 50,000    | 
|               
|               
|               
|               
|Preferred stock |  |                 | 15,000,000 |                 |  |            |  |             |  |  | 2,779,661  |  |  |  |          | 
|                |  |                 |            |                 |  |            |   |             |  |  |            |  |  |  |           | 
|                |  |                 | 15,000,000 |                 |  |            |  |             |  |  | 10,000,000 |  |  |  | 6,901,219 | 
|                |  |                 |            |                 |  |            |   |             |  |  |            |  |  |  |           | 

On January 26, 2000, the Company closed an investment
agreement (the Agreement) with PerkinElmer, Inc.
(PerkinElmer) for $8.0 million through the
purchase of 1,269,841 shares of the Companys
Series P preferred stock at $6.30 per share.
Additionally, the Agreement provides an option for PerkinElmer
to acquire additional shares of the Companys common stock
thereby increasing its ownership interest to approximately 20%
of the Company. As part of the agreement, PerkinElmer entered
into purchase

F-15



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Since the Series P preferred stock was convertible into
common stock at a rate less than fair value, there was a
beneficial conversion feature associated with the Series P
preferred stock. The Company recorded a charge of
$8.0 million related to the beneficial conversion feature
in the first quarter of fiscal 2000. The beneficial conversion
feature was recorded through equal and offsetting amounts to
additional paid-in capital and retained deficit as a deemed
dividend and did not affect total stockholders equity nor
the results of operations. However, the beneficial conversion
charge increased the net loss attributable to common
stockholders in the computation of net loss per share.

The Board of Directors is authorized to issue up to
15,000,000 shares of preferred stock in one or more series.
Under each issuance of a series of preferred stock, the Board of
Directors is permitted to fix the designations, preferences,
powers, and relative rights and restrictions thereof, including
without limitation, the dividend rate, conversion rights, voting
rights, redemption price, and liquidation preference.

12.  CALLABLE COMMON STOCK

The Company has reserved for issuance that number of shares of
its authorized but unissued callable common stock necessary to
exercise all of its outstanding stock options.

13.  STOCK OPTION PLANS

The Company has three stock option plans: the 1994 Stock Option
Plan (the 1994 Plan); the 1998 Employee Stock
Option Plan (the 1998 Plan); and the 1998
Non-Employee Director and Consultant Stock Option Plan (the
Non-Employee Plan). Options granted under these
plans are either incentive stock options, which are granted at
the fair market value of the callable common stock on the date
of grant, or non-qualified stock options, which are generally
granted at the fair market value of the callable common stock on
the date of grant. Options are granted at the discretion of the
Board of Directors upon recommendation by the Compensation
Committee and expire ten years after the date of grant.

1994 Stock Option Plan

The 1994 Plan provided for the grant of options to employees,
consultants and directors. The maximum number of shares that may
be granted under the 1994 Plan is 1,590,000. Options granted
generally become exercisable at a rate of 33% per year over
three years from the date of grant except that 540,000 options
vested immediately upon issuance and 14,600 options vest over a
five-year period.

1998 Employee Stock Option Plan

In January 1998, the Company established the 1998 Plan to
increase its ability to attract and retain key employees. The
maximum number of shares that may be granted under the Plan is
2,000,000. Options granted prior to January 1, 2000 become
exercisable at a rate of 20% per year over five years from the
date of grant. Options granted in 2000 generally become
exercisable monthly over three years from the date of grant
except that 30,000 options vested immediately upon issuance and
150,000 options vest annually over a five-year period.

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1998 Non-Employee Director and Consultant Stock Option
Plan

In January 1998, the Company established the Non-Employee
Plan to increase its ability to retain directors and
consultants. The maximum number of shares that may be granted
under the Plan is 750,000. Options granted generally become
exercisable one year from date of grant.

Summary of Stock Option Plans

Stock option activity under the above plans is summarized below:

|                                                          |                   |           |           |                |   |   |      |       | 
|--------------------------------------------------------- | ----------------- | --------- | --------- | -------------- | - | - | ---- | ----- | 
|                                                          |                   |           |           | Weighted      
|                                                          |                   | Number of |           | Average       
|                                                          |                   | Shares    |           | Exercise Price
|                                                          |                   |           |           |               
|Outstanding at December 31, 1997.                         |                   |           | 1,582,100 |                |   | $ | 0.07 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options granted   |           |           | 1,234,000      |   |   | $    | 1.08  | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options cancelled |           |           | (123,834       | ) |   | $    | 1.02  | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options exercised |           |           | (753,330       | ) |   | $    | 0.07  | 
|                                                          |                   |           |           |                |   |   |      |      
|Outstanding at December 31, 1998.                         |                   |           | 1,938,936 |                |   | $ | 0.70 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options granted   |           |           | 310,750        |   |   | $    | 2.00  | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options cancelled |           |           | (136,485       | ) |   | $    | 1.15  | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options exercised |           |           | (86,830        | ) |   | $    | 0.10  | 
|                                                          |                   |           |           |                |   |   |      |      
|Outstanding at December 31, 1999.                         |                   |           | 2,026,371 |                |   | $ | 0.89 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options granted   |           |           | 910,000        |   |   | $    | 10.55 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options cancelled |           |           | (188,185       | ) |   | $    | 2.22  | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Options exercised |           |           | (907,320       | ) |   | $    | 0.34  | 
|                                                          |                   |           |           |                |   |   |      |      
|Outstanding at December 31, 2000.                         |                   |           | 1,840,866 |                |   | $ | 5.81 |      
|                                                          |                   |           |           |                |   |   |      |      
|Weighted average fair value of stock options granted 2000 |                   |           | $7.99     |                |   |   |      |      
|                                                          |                   |           |           |                |   |   |      |      
|Weighted average fair value of stock options granted 1999 |                   |           | $1.41     |                |   |   |      |      
|                                                          |                   |           |           |                |   |   |      |      
|Weighted average fair value of stock options granted 1998 |                   |           | $0.83     |                |   |   |      |      
|                                                          |                   |           |           |                |   |   |      |      

Options outstanding and exercisable at December 31, 2000
are as follows:

|          |           |           |  |                  |       |             |  |  |           |  |  |  |         | 
|--------- | --------- | --------- |  | ---------------- | ----- | ----------- |  |  | --------- |  |  |  | ------- | 
|          |           |           |  | Weighted Average |       |            
|Number of |           | Price     |  | Contractual      |       |            
|Shares    |           | Per Share |  | Remaining Life   |       | Exercisable
|          |           |           |  |                  |       |            
|          | 80,367    |           |  | $                | 0.07  |             |  |  | 6.4 Years |  |  |  | 80,367  | 
|          | 316,300   |           |  | $                | 0.37  |             |  |  | 7.0 Years |  |  |  | 177,200 | 
|          | 545,450   |           |  | $                | 2.00  |             |  |  | 7.8 Years |  |  |  | 294,200 | 
|          | 336,000   |           |  | $                | 8.00  |             |  |  | 9.3 Years |  |  |  | 122,361 | 
|          | 270,000   |           |  | $                | 9.88  |             |  |  | 9.9 Years |  |  |  | 7,451   | 
|          | 122,138   |           |  | $                | 13.19 |             |  |  | 9.7 Years |  |  |  | 10,298  | 
|          | 170,611   |           |  | $                | 14.69 |             |  |  | 9.6 Years |  |  |  | 19,047  | 
|          |           |           |  |                  |       |             |  |  |           |  |  |  |         | 
|          | 1,840,866 |           |  |                  |       |             |  |  |           |  |  |  | 710,924 | 
|          |           |           |  |                  |       |             |  |  |           |  |  |  |         | 

Stock-Based Compensation

Using the intrinsic value method under APB 25, no
compensation expense has been recognized in the accompanying
consolidated statements of operations for options granted to
employees at fair value. In 1999, the Company granted 200,250
stock options with a deemed fair value in excess of the amount
the employee must pay to acquire the stock. Accordingly, the
Company recorded deferred compensation totaling approximately
$129,000, which is included, as an offset to stockholders
equity in the accompanying consolidated balance sheets. The
deferred compensation is being amortized on a straight-line
basis over the vesting period

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Had compensation expense been determined based on the fair value
at the date of grant consistent with SFAS No. 123, the
reported net loss and loss per share attributable to common
stockholders from operations would have been increased to the
following pro forma amounts, which may not be representative of
that to be expected in future years (in thousands, except per
share data):

|                             |  |                          |         |      |  |      |         |   |  |   |        |  
|---------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                             |  |                         
|                             |  | Years ended December 31,
|                             |  |                         
|                             |  | 2000                     |         | 1999 |  | 1998
|                             |  |                          |         |      |  |     
|Net loss     As Reported    |  | $                        | (15,845 | )    |  | $    | (15,003 | ) |  | $ | (7,786 | )
|                            
|                            
|                            
|                            
|Pro
	 Forma                  |  | $                        | (17,121 | )    |  | $    | (15,103 | ) |  | $ | (7,863 | )
|                            
|                            
|                            
|                            
|Loss per share  As Reported |  | $                        | (0.90   | )    |  | $    | (5.04   | ) |  | $ | (2.71  | )
|                            
|                            
|                            
|                            
|Pro
	 Forma                  |  | $                        | (0.98   | )    |  | $    | (5.08   | ) |  | $ | (2.73  | )

The fair value of these options was estimated at the date of
grant using the Black-Scholes option valuation method in 2000
with the following assumptions: weighted average risk free
interest rate of 6.13%, dividend yield of 0%, expected life of
options of 4 years, and a volatility factor of 100%. The
fair value of these options was estimated using the minimum
value option valuation method under SFAS 123 in 1999 and 1998
with the following assumptions: weighted average risk free
interest rate of 5.86% and 5.82%, dividend yield of 0%, and
expected life of options of 5.3 years and 3 years in
1999 and 1998, respectively. Option valuation models require the
input of highly subjective assumptions. Because changes in
subjective input assumptions can materially affect the fair
value estimate, in managements opinion, the existing model
does not necessarily provide a reliable single measure of the
fair value of the Companys stock options.

14.  EMPLOYEE STOCK PURCHASE PLAN

In February 2000, the Company established the Employee
Stock Purchase Plan (ESPP). All employees are
eligible to participate in the ESPP. The plan provides that
participants may authorize Genomic Solutions to withhold a
portion of earnings to be used to purchase the Companys
callable common stock. A total of 1,000,000 shares of callable
common stock have been reserved for issuance under the Purchase
Plan. The Purchase Plan provides that the Company will sell
shares to employees who elect to participate in the Purchase
Plan at a price equal to 85% of the lesser of the fair market
value of the common stock on the first trading day of an
offering period or the last trading day of such offering period.

Under the Purchase Plan, the Company issued 4,909 shares of
common stock to various employees in 2000. These shares were
issued with a weighted average price per share of $6.48. At
December 31, 2000, there were 995,091 shares of callable
common stock available to be issued under this plan.

15.  EMPLOYEE BENEFIT PLAN

Genomic Solutions Inc. has a 401(k) plan covering all eligible
United States employees. Participants may elect to defer a
percentage of qualified compensation through voluntary
contributions to the plan and Genomic Solutions Inc. may make
discretionary contributions to the plan based on the gross
compensation of qualified participants. Genomic Solutions Inc.
made contributions of approximately $98,000 in 2000. Genomic
Solutions Inc. made no contributions to the plan in 1999 and
1998.

In October 2000, Genomic Solutions Ltd. established a
pension plan covering all eligible United Kingdom employees.
Participants may elect to defer a percentage of qualified
compensation through voluntary contributions to the plan and
Genomic Solutions Ltd. will make matching contributions to the
plan up to 3% of the base salary of qualified participants.
Genomic Solutions Ltd. made contributions of approximately
$15,000 in 2000.

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16.  COMMITMENTS AND CONTINGENCIES

Leases

The Company sold assets for approximately $113,000 and
$1.1 million in 2000 and 1999, respectively. These assets
were leased back from the purchaser over a period of three to
four years. The resulting leases are being accounted for as
capital leases, and the resulting gain on these sale-leasebacks
of approximately $10,000 and $460,000 in 2000 and 1999,
respectively, is being amortized on a straight-line basis over
the life of the related lease.

The Company leases most of its office space, transportation, and
laboratory and office equipment under various capital and
operating lease agreements. Initial leases vary in length and
several of the leases contain renewal options. Capital leases
terminate at various dates through fiscal 2004. Total rental
expense was approximately $850,000, $454,000 and $425,000 in
2000, 1999 and 1998, respectively.

Future minimum payments required under all noncancelable capital
and operating leases at December 31, 2000 are as follows
(in thousands):

|                                           |  |       |       |           |  |         |       |  |  |   |       | 
|------------------------------------------ |  | ----- | ----- | --------- |  | ------- | ----- |  |  | - | ----- | 
|                                           |  |       |       | Operating |  | Capital
|                                           |  | Total |       | Leases    |  | Leases 
|                                           |  |       |       |           |  |        
|2001                                       |  | $     | 1,704 |           |  | $       | 817   |  |  | $ | 887   | 
|                                          
|                                          
|                                          
|                                          
|2002                                       |  |       | 1,303 |           |  |         | 603   |  |  |   | 700   | 
|                                          
|                                          
|                                          
|                                          
|2003                                       |  |       | 648   |           |  |         | 209   |  |  |   | 439   | 
|                                          
|                                          
|                                          
|                                          
|2004                                       |  |       | 283   |           |  |         | 94    |  |  |   | 189   | 
|                                          
|                                          
|                                          
|                                          
|2005                                       |  |       | 64    |           |  |         | 64    |  |  |   |      | 
|                                           |  |       |       |           |  |         |       |  |  |   |       | 
|                                           |  | $     | 4,002 |           |  | $       | 1,787 |  |  |   | 2,215 | 
|                                           |  |       |       |           |  |         |       |  |  |   |       | 
|Less  Amount representing interest        |  |       |       |           |  |         |       |  |  |   | 263   | 
|                                           |  |       |       |           |  |         |       |  |  |   |       | 
|Present value of capital lease obligations |  |       |       |           |  |         |       |  |  |   | 1,952 | 
|                                          
|                                          
|                                          
|                                          
|Less  Current portion                     |  |       |       |           |  |         |       |  |  |   | 750   | 
|                                           |  |       |       |           |  |         |       |  |  |   |       | 
|                                           |  |       |       |           |  |         |       |  |  | $ | 1,202 | 
|                                           |  |       |       |           |  |         |       |  |  |   |       | 

Litigation

On February 12, 2001, PerkinElmer filed a lawsuit in
Delaware Chancery Court requesting that the Delaware court
interpret the terms of PerkinElmers right, under the
Companys Certificate of Incorporation, to require the
Company to call and redeem its callable common stock. The
lawsuit names the Company as well as each of its directors and
alleges, among other things, that the Company sought to
improperly impede or terminate PerkinElmers right to cause
the Company to redeem its callable stock, and to impose an
improper financial penalty upon an exercise by PerkinElmer of
that right. PerkinElmers complaint is in the context of a
proposed transaction that the Company was pursuing with an
unnamed third party, which if completed without PerkinElmer
exercising its right, would have the effect of terminating the
right. On February 15, 2001, the Company filed a motion for
summary judgment seeking dismissal of the lawsuit. The Company
believes the PerkinElmer lawsuit is without merit and intends to
defend its rights vigorously and aggressively.

On November 27, 2000, Molecular Dynamics, Inc. filed a
lawsuit against us in Santa Clara County Superior Court, San
Jose, California. The lawsuit relates to the Companys
refusal to purchase shares of capital stock of Meridian
Instruments, Inc. owned by Molecular Dynamics. The complaint
seeks payment of approximately $657,000, increased by $8,333
each month until payment is made, as a result of a
put right in favor of Molecular Dynamics which the
Company is allegedly obligated to honor.

It is the Companys understanding that Meridian obtained
certain transferable license rights to Molecular Dynamics
imaging technology as part of the 1995 settlement of a patent
dispute. Under the settlement agreement, Molecular Dynamics
received stock in Meridian subject to both put and call rights
on the occurrence of certain events. The license to the
technology was transferred by Meridian to Insight Biomedical

F-19



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Molecular Dynamics claims it has a contractual right to require
Meridian Instruments to repurchase the shares of Meridian issued
to Molecular Dynamics. It further claims that the Company, as an
assignee of the patent license, has an obligation to honor
Molecular Dynamics desire to have its stock in Meridian
repurchased. Molecular Dynamics has asserted, among other
things, that the Company expressly or implicitly assumed the
re-purchase obligation, that the Company is a legal successor of
Meridian Instruments, and that there was a fraudulent transfer
of the Meridian assets. The Company believes the lawsuit is
without merit and intends to vigorously defend the lawsuit.

From time to time, the Company is a defendant in various
lawsuits that have arisen in the normal course of business.
Management believes that the ultimate resolution of these
matters will not have a material adverse effect on the
Companys financial position or results of operations.

Royalty Payments

Under the terms of various license agreements (see Note 2), the
Company is required to pay royalties on certain product sales
during the terms of the respective agreements. Under the most
significant agreement, royalties are generally equal to the
greater of pre-determined minimums, a percentage of product
revenue, or a set amount per product.

17.  ACQUISITIONS

Electrophoresis Business from ESA, Inc.

In October 1998, the Company acquired the gel
electrophoresis and proteomic business of ESA, Inc. in exchange
for approximately $1.8 million in cash and a warrant to
purchase 125,000 shares of callable common stock at an exercise
price of $6.00 per share. The acquisition has been accounted for
under the purchase method of accounting. In connection with the
acquisition, the Company recorded a charge to operations in 1998
of $340,000, associated with the write-off of in-process
research and development acquired in the transaction that had
not reached technological feasibility. The remaining excess of
the aggregate purchase price over the fair value of the net
assets acquired of approximately $906,000 has been recognized as
goodwill and is being amortized over a seven-year period (See
Note 2). The operating results of ESA have been included in the
Companys consolidated results of operations from the date
of acquisition. The purchase price consists of the following (in
thousands):

|                                                |               |   |     |       | 
|----------------------------------------------- | ------------- | - | --- | ----- | 
|                                               
|                                               
|                                               
|                                               
|Net assets                                      |               | $ | 504 |      
|                                               
|                                               
|                                               
|                                               
|Purchase price in excess of net assets acquired |               |   | 906 |      
|                                               
|                                               
|                                               
|                                               
|Purchased in-process research and development   |               |   | 340 |      
|                                                |               |   |     |      
|                                                | Net cash paid |   | $   | 1,750 | 
|                                                |               |   |     |      

ESAs primary in-process research and development projects
consisted of designing new proteomic technologies for a gel
stainer/destainer and IPG running device which were
approximately 85% and 22%, complete at the date of acquisition,
respectively. The fair values of these projects were determined
by estimating the contribution of the purchased in-process
technology to developing commercially viable products and
estimating the resulting cash flows from the expected product
sales of such products. In determining the discounted cash
flows, material net cash in-flows are expected to occur from
1999 to 2002 and the risk-adjusted discount rate was 35%. The
acquired in-process research and development had no alternative
future use. Management is primarily responsible for the
valuation of the acquired in-process research and development.

Insight Biomedical Imaging, Inc.

In April 1998, the Company acquired certain assets of
Insight Biomedical Imaging Inc. (Insight), in
exchange for $650,000 in cash. The acquisition has been
accounted for under the purchase method of

F-20



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|                                                |               |   |     |     | 
|----------------------------------------------- | ------------- | - | --- | --- | 
|                                               
|                                               
|                                               
|                                               
|Net assets                                      |               | $ | 39  |    
|                                               
|                                               
|                                               
|                                               
|Purchase price in excess of net assets acquired |               |   | 611 |    
|                                                |               |   |     |    
|                                                | Net cash paid |   | $   | 650 | 
|                                                |               |   |     |    

The pro forma effect of these acquisitions would not be
materially different from reported results.

18.  SEGMENT INFORMATION

The Company operates in one segment: the development,
manufacture and marketing of integrated, high throughput genomic
and proteomic systems and services for analyzing and quantifying
biomolecules. The Companys two product lines, genomic and
proteomic systems and services, have similar economic
characteristics and attributes, including similar marketing and
distribution patterns, similar production processes and similar,
if not the same, customers. As a result, the Company aggregates
its product lines into a single segment of genomic and proteomic
systems and services. The Company operates primarily in three
geographic regions: the United States, 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 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.

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

|         |                             |                          |   |         |        |      |   |        |        |  |   |        |       | 
|-------- | --------------------------- | ------------------------ | - | ------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ----- | 
|         |                             |                         
|         |                             | Years ended December 31,
|         |                             |                         
|         |                             | 2000                     |   | 1999    |        | 1998
|         |                             |                          |   |         |        |     
|Revenue: |                             |                          |   |         |        |      |   |        |        |  |   |       
|        
|        
|        
|        
|         | United States               |                          | $ | 11,494  |        |      | $ | 8,897  |        |  | $ | 3,409  |      
|        
|        
|        
|        
|         | Europe                      |                          |   | 13,287  |        |      |   | 6,867  |        |  |   | 2,386  |      
|        
|        
|        
|        
|         | Japan                       |                          |   | 4,675   |        |      |   | 2,296  |        |  |   | 1,031  |      
|        
|        
|        
|        
|         | Less  Intercompany revenue |                          |   | (10,379 | )      |      |   | (5,968 | )      |  |   | (1,319 | )    
|         |                             |                          |   |         |        |      |   |        |        |  |   |       
|         |                             | Total revenue            |   | $       | 19,077 |      |   | $      | 12,092 |  |   | $      | 5,507 | 
|         |                             |                          |   |         |        |      |   |        |        |  |   |       

|                   |                     |                         |   |        |        |      |   |       |       |  |   |       |       | 
|------------------ | ------------------- | ----------------------- | - | ------ | ------ | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                   |                     |                        
|                   |                     | At December 31,        
|                   |                     |                        
|                   |                     | 2000                    |   | 1999   |        | 1998
|                   |                     |                         |   |        |        |     
|Long-lived assets: |                     |                         |   |        |        |      |   |       |       |  |   |      
|                  
|                  
|                  
|                  
|                   | United States       |                         | $ | 17,334 |        |      | $ | 2,885 |       |  | $ | 2,043 |      
|                  
|                  
|                  
|                  
|                   | Europe              |                         |   | 916    |        |      |   | 1,265 |       |  |   | 571   |      
|                  
|                  
|                  
|                  
|                   | Japan               |                         |   | 168    |        |      |   | 59    |       |  |   | 42    |      
|                  
|                  
|                  
|                  
|                   | Goodwill            |                         |   | 954    |        |      |   | 1,253 |       |  |   | 2080  |      
|                  
|                  
|                  
|                  
|                   | Less  Eliminations |                         |   | (8,943 | )      |      |   | (778  | )     |  |   | (831  | )    
|                   |                     |                         |   |        |        |      |   |       |       |  |   |      
|                   |                     | Total long-lived assets |   | $      | 10,429 |      |   | $     | 4,684 |  |   | $     | 3,905 | 
|                   |                     |                         |   |        |        |      |   |       |       |  |   |      

In 2000, PerkinElmer accounted for 14% of the Companys
total revenue. No other customer accounted for greater than 10%
of total revenue in 1999 and 1998.

F-21



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##### Table of Contents



19.  RELATED PARTY TRANSACTIONS

The Company sold approximately $2.7 million of product to
PerkinElmer, a 5.1% shareholder, in 2000. At December 31,
2000, the Company had an outstanding receivable balance of
approximately $1.9 million from PerkinElmer.

20.  RESTRUCTURING

On May 16, 2000, the Company incurred a one-time
restructuring charge of $600,000 to close our Chelmsford,
Massachusetts proteomics facility. A new Center for Proteomics
has been constructed at our Ann Arbor, Michigan headquarters.
The charge consisted primarily of $400,000 for employee
termination benefits for fifteen employees and $200,000 for exit
costs associated with closing the facility. The restructuring
reserve has been fully utilized and there is no remaining
balance at December 31, 2000.

21.  QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data is as follows (in thousands,
except per share data):

|                                          |  |             |        |             |  |             |        |             |  |              |        |   |  |   |        |   |  |   |         |  
|----------------------------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | ------------ | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                          |  | 1st Quarter |        | 2nd Quarter |  | 3rd Quarter |        | 4th Quarter |  | Year to Date
|                                          |  |             |        |             |  |             |        |             |  |             
|2000                                      |  |             |        |             |  |             |        |             |  |              |        |   |  |   |        |   |  |   |         |  
|                                         
|                                         
|                                         
|                                         
|Revenue                                   |  | $           | 3,995  |             |  | $           | 4,500  |             |  | $            | 5,038  |   |  | $ | 5,544  |   |  | $ | 19,077  |  
|                                         
|                                         
|                                         
|                                         
|Gross profit                              |  |             | 1,991  |             |  |             | 2,169  |             |  |              | 2,503  |   |  |   | 3,040  |   |  |   | 9,703   |  
|                                         
|                                         
|                                         
|                                         
|Loss before extraordinary items           |  |             | (2,844 | )           |  |             | (2,867 | )           |  |              | (869   | ) |  |   | (1,274 | ) |  |   | (7,854  | )
|                                         
|                                         
|                                         
|                                         
|Loss per share before extraordinary items |  |             | (0.83  | )           |  |             | (0.17  | )           |  |              | (0.03  | ) |  |   | (0.05  | ) |  |   | (0.45   | )
|                                         
|                                         
|                                         
|                                         
|Net loss                                  |  |             | (3,894 | )           |  |             | (2,867 | )           |  |              | (869   | ) |  |   | (1,274 | ) |  |   | (8,904  | )
|                                         
|                                         
|                                         
|                                         
|Net loss per share                        |  | $           | (1.14  | )           |  | $           | (0.17  | )           |  | $            | (0.03  | ) |  | $ | (0.05  | ) |  | $ | (0.51   | )
|                                         
|                                         
|                                         
|                                         
|1999                                      |  |             |        |             |  |             |        |             |  |              |        |   |  |   |        |   |  |   |         |  
|                                         
|                                         
|                                         
|                                         
|Revenue                                   |  | $           | 2,436  |             |  | $           | 3,071  |             |  | $            | 3,163  |   |  | $ | 3,422  |   |  | $ | 12,092  |  
|                                         
|                                         
|                                         
|                                         
|Gross profit                              |  |             | 1,173  |             |  |             | 1,381  |             |  |              | 1,466  |   |  |   | 1,082  |   |  |   | 5,102   |  
|                                         
|                                         
|                                         
|                                         
|Loss before extraordinary items           |  |             | (2,023 | )           |  |             | (2,513 | )           |  |              | (2,767 | ) |  |   | (3,839 | ) |  |   | (11,142 | )
|                                         
|                                         
|                                         
|                                         
|Loss per share before extraordinary items |  |             | (0.69  | )           |  |             | (0.85  | )           |  |              | (0.92  | ) |  |   | (1.27  | ) |  |   | (3.75   | )
|                                         
|                                         
|                                         
|                                         
|Net loss                                  |  |             | (2,023 | )           |  |             | (2,513 | )           |  |              | (2,767 | ) |  |   | (3,839 | ) |  |   | (11,142 | )
|                                         
|                                         
|                                         
|                                         
|Net loss per share                        |  | $           | (0.69  | )           |  | $           | (0.85  | )           |  | $            | (0.92  | ) |  | $ | (1.27  | ) |  | $ | (3.75   | )

F-22